Updated on 05.07.07

Separating The “Wants” From The “Needs”

Trent Hamm

My wife and I have a monthly financial review meeting where we sit down with all of our bills, credit card statements, and so forth. We go through everything together, item by item, and try to figure out where we can trim our spending. Most of the time, we’re in pretty clear agreement on things, but once in a while we disagree on the necessity of an item. What this entire discussion comes down to is a clear definition of our wants and our needs.

What are wants and needs? In a nutshell, needs are the things that you absolutely have to pay in order to live and avoid bankruptcy: housing payments, taxes, groceries, commuting costs, and so on. Wants are the things that you spend money on that you don’t explicitly need, like dining out or music.

As a rule of thumb, my wife and I allow each other a certain amount of wants in a given month, because life isn’t fun if you can’t have anything that you want. My wants are usually books, food, and occasionally music; hers are much more varied. By capping our wants at a reasonable level each month (and also with the peer review process on such spending), we often find ourselves saving quite a bit of money each month.

The tricky part is determining whether some of your spending is a have or a want. For example, let’s say we have beef burgundy for supper and in order to make it, we have to buy a new bottle of cooking wine (we generally buy pretty cheap wines for cooking wines, like “two buck Chuck”). It’s not explicitly a need, as you can prepare food at home without it, but it also really stretches the definition of want as well, as things like cooking wine enable us to prepare delicious meals at home that encourage us to eat at home instead of getting takeout or eating out, so in the long run buying a bottle of cooking wine is a money saver for us.

Here’s the process we go through to determine if something is a need or a want:

First, we list all of our spending that isn’t strictly essential in a month. Things that are essential are housing bills, most gas costs, staple foods, medical bills, insurance, and so on. These are things that we have to pay no matter what.

After we’ve made that list, we list everything that’s clearly a want. Entertainment and hobby expenses, dining out, and so on go under this category and immediately go on the want list.

This leaves us usually with a handful of things that we talk about – things like the cooking wine and so on. This process is more organic, but it usually comes down to the following question: would we have spent more money than this had we not purchased the item? With a bottle of inexpensive cooking wine, the answer is usually “yes,” because we likely would have eaten out more often without tools like that in the kitchen, thus costing us more in the long run. We use a similar philosophy to mark things such as CFLs as needs.

After this process, reviewing the list of wants helps us keep our eye on the financial ball each month. We usually strive to keep ourselves within our self-imposed allowance – and thankfully, we’re both usually way under the limit.

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  1. Andamom says:

    Another thought to add to this — If you forgo a major want, take the money that you would have spent and invest it! Then, for s&g, track that investment to see how it performs. Months or a year thereafter, evaluate, would you have gotten the same sort of happiness from your “want” that you are getting from seeing your wealth grow? Hopefully, in due time, you’ll be able to afford a larger want.

  2. Baker says:

    i really cant agree more. I think that once you know your Wants and Needs then you can have a right view of you financial expenditure and from there we can control the Liability and have more money to be invested in Stocks and Real Estate.
    Great Article…

  3. Diomede says:

    My first post. I think this is the big question, need or want.
    It is so difficult the answer, because is not possible to think completely rationally.

    Satisfy only needs means you are not living, just surviving. Nobody likes it.

    We live in a society and our spend behavior depends also from the position we cover. Other people, family, friends, workmates.. expect something in some occasion (from buying a new dress to buy a present or give a call..). It is so difficult say no.

  4. John says:

    I really like the idea presented here. The best thing about it is the fact that it stresses communication over confrontation. I do a similar thing where I categorize all my expenses under two broad umbrellas: Discretionary and Non-Discretionary. It’s amazing how much money actually ends up on the discretionary side. Good job Trent!

  5. distressed spouse says:

    How about when your spouse wants buy arts! which to me is a luxury? But he argues that this is what makes him happy, and he can even argue this is his NEEDs… I rather save the money or invest it for the future for our children. How do you argue with someone who has such different points in values in different things……

  6. annie says:

    Sounds like a very boring and dismal way to live!

    To me, if you have a scarcity mentality that’s what you will have: scarcity.

    Live and enjoy…..you don’t know how long you”ll be around!

    You can always make money but you can’t buy time!

  7. Jack says:

    distressed spouse i know the feeling. We have 2 cars that run fine but my spouse wants a new one which with our debt i think we can ill afford. i have seen better retraint since we have monthly budget meetings.

    For Annie sounds good but ask a walmart greeter how having it all in the early years feels now.

  8. mike says:

    I agree that this sounds like a very boring and dismal way to live.

    I noticed when you listed necessities, savings was not included. Why not decide first how much you want to set aside each month to make you feel comfortable. Then, once you’ve set the money aside, spend away!

    No more philosophical discussions over the value/non-value of a $2 wine purchase!!!

  9. reulte says:

    “Scarcity mentality” sounds like Pf mumbo jumbo – did that come out of The Secret? Having an awareness of one’s spendable money is hardly “scarcity mentality”. Savings have probably already been removed from the calculations – I know they come out of my paycheck before I even look at it. (16% to retirement, then an extra 25% go into a house-buying fund, and a smidgen over 10% into easy-to-grab emergency fund). Wow – never noticed I was saving 51% of my income.

    There is nothing boring and dismal about choosing where to spend your money and time; borning and dismal is having no money and having to work until you die. After all, to quote Annie . . . you have no idea how long you’ll be around.

    How about a philosophical discussion over the value/non-value of a $20 bottle of wine? Or a $200 bottle of wine? Dare we go into a $2000 bottle? A $2000 dinner to celebrate? How about a $2000 car? A $2000 investment into blue chip funds? Into raw diamonds? If you don’t know your parameters for spending — wants, needs, whatever — then it becomes very easy to get financially lost.

    Finances, like housework, don’t stop just because it was done once. It’s ongoing.

    distressed spouse — tell him your NEEDS; you need to have a financial future and that is, at least as important as his NEED for art.

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