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10.06.2020 / Budgeting « Back to all articles

Differentiating Wants Vs. Needs in Budgeting
Differentiating Wants Vs. Needs in Budgeting

A primary benefit of budgeting is the ability to manage your cash flow and make your money do what you want. Once you have a solid budget in place, you get a better idea of where your money is going and whether it's working for you. However, budgeting is not a one-time exercise. You track your spending, and then you prioritize, and then you track some more, and then you prioritize again. It goes on like this forever, with you making tweaks as your circumstances and priorities change. 

 

Prioritize Your Spending Goals 

Sometimes you need to find more room in your budget because you've been spending more than you earn. Other times, you may need to save for a big expense. Or, maybe you want to save more for retirement. Whatever the reason, it's time for a budget tune-up. The first thing to do when you need to cut back on spending is to prioritize by separating your needs from your wants. 

You may think of needs as only food, clothing, and shelter, but you don't have to get that drastic when tightening up your budget. For example, if you commute to work, transportation may be one of your needs. On the other hand, if you only use your car to take long, scenic drives because you're bored at home, it may be a want. If you're a journalist, your newspaper and cable TV subscriptions may qualify as needs. 

 

Avoid the All-or-Nothing Budgeting Trap 

As you go through your list of usual expenses, decide which qualify as wants and which qualify as needs, depending on your unique circumstances. Your needs will naturally be priorities, but don't assume that you must cut every nonessential item out of your budget. If you ever get to the point where you need to do that, you'll know. However, when you just need to free up some extra cash, try to moderate your discretionary spending instead of cutting it out entirely. Some economists recommend dedicating as much as 30% of your monthly spending to technically nonessential things, such as dining out and streaming video services. Cutting out every fun thing from your budget can leave you feeling discouraged, which in turn can lead to giving up and going on a spending spree. At that point, you're worse off than you were when you started. 

Whether you're just starting to budget or you're tweaking a system that you've had in place for a while, it's important, to be honest with yourself about the difference between a want and a need. The most important thing is that you have a roof over your head, food in the pantry, and whatever other things are vital to your making a living. Once those things are covered, you can decide which of your other budget categories to keep and which to defund. 

11.24.2020 / Borrowing

Falling Behind on Your Mortgage? Read This
When economic times are tough, it's easy to start falling behind on crucial monthly payments, including your mortgage.…

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10.06.2020 / Budgeting « Back to all articles

Differentiating Wants Vs. Needs in Budgeting
Differentiating Wants Vs. Needs in Budgeting

A primary benefit of budgeting is the ability to manage your cash flow and make your money do what you want. Once you have a solid budget in place, you get a better idea of where your money is going and whether it's working for you. However, budgeting is not a one-time exercise. You track your spending, and then you prioritize, and then you track some more, and then you prioritize again. It goes on like this forever, with you making tweaks as your circumstances and priorities change. 

 

Prioritize Your Spending Goals 

Sometimes you need to find more room in your budget because you've been spending more than you earn. Other times, you may need to save for a big expense. Or, maybe you want to save more for retirement. Whatever the reason, it's time for a budget tune-up. The first thing to do when you need to cut back on spending is to prioritize by separating your needs from your wants. 

You may think of needs as only food, clothing, and shelter, but you don't have to get that drastic when tightening up your budget. For example, if you commute to work, transportation may be one of your needs. On the other hand, if you only use your car to take long, scenic drives because you're bored at home, it may be a want. If you're a journalist, your newspaper and cable TV subscriptions may qualify as needs. 

 

Avoid the All-or-Nothing Budgeting Trap 

As you go through your list of usual expenses, decide which qualify as wants and which qualify as needs, depending on your unique circumstances. Your needs will naturally be priorities, but don't assume that you must cut every nonessential item out of your budget. If you ever get to the point where you need to do that, you'll know. However, when you just need to free up some extra cash, try to moderate your discretionary spending instead of cutting it out entirely. Some economists recommend dedicating as much as 30% of your monthly spending to technically nonessential things, such as dining out and streaming video services. Cutting out every fun thing from your budget can leave you feeling discouraged, which in turn can lead to giving up and going on a spending spree. At that point, you're worse off than you were when you started. 

Whether you're just starting to budget or you're tweaking a system that you've had in place for a while, it's important, to be honest with yourself about the difference between a want and a need. The most important thing is that you have a roof over your head, food in the pantry, and whatever other things are vital to your making a living. Once those things are covered, you can decide which of your other budget categories to keep and which to defund. 

Need a
Loan?

Loans from $120 to $15,000. Get funded as soon as today!

11.24.2020 / Borrowing

Falling Behind on Your Mortgage? Read This
When economic times are tough, it's easy to start falling behind on crucial monthly payments, including your mortgage.…