A major component of budgeting and setting financial goals is differentiating between your wants and needs. Here are some examples of wants and needs and how to set up a budget so you can accommodate both.
WHAT ARE CONSIDERED NEEDS?
Needs are any items you buy that allow you to live and work. For the most part, these are usually recurring expenses that you pay regularly. In most cases, needs are universal for all human beings. Some examples include:
- Utilities (gas, electricity, water, etc.)
- Insurance (health, auto, home, etc.)
WHAT ARE CONSIDERED WANTS?
Wants are items that you don’t necessarily need to survive, but make your life more comfortable and fun. These expenses are more sporadic and may not be something you pay for on a regular basis. Wants are also more unique and something you want may not be what another person wants. Some examples include:
- Entertainment (restaurants, movies, concerts, etc.)
- Upgraded needs (designer clothes, nicer cars, bigger house, etc.)
HOW CAN I COVER BOTH?
While there are many different methods of budgeting, one of the most popular is the 50/30/20 rule. In this method of budgeting, 50% of your paycheck goes towards your needs, 30% goes towards wants, and 20% goes towards savings. While this sounds great on paper, it may not be practical for everyone. This is especially true for teens whose parents may be providing for most of their needs. In your early teens, you should be placing an emphasis on your saving for the next stage of your life. As your paycheck grows, you can start splitting it as your expenses change.