People—especially the younger ones—are constantly complaining that they don’t have enough money. If you take a good look at their income, though, this really shouldn’t be the case. It’s just that people don’t keep track of their spending, and therefore don’t know where the money goes.
In a recent study conducted by Westwood College, they discovered that 40% of a college student’s total income goes to discretionary spending. This includes entertainment, fashion, luxury, and other similar expenses.
Though it’s okay to spend on a few luxuries once in a while, your priority should always be your needs rather than your wants. In managing your budget and your income, you have to learn to differentiate between the two first.
It should be easy to differentiate between “needs” and “wants”. Anything you require for survival is a need. This should include the tools you need to perform your tasks and duties. So, for a college student, an Internet connection would be a need rather than a “want”. Anything inessential can be considered a “want”.
The problem is that sometimes, the brain can trick you into transforming a “want” into a “need”. For example, you see a lovely pair of running shoes that you don’t actually need since you already have an existing pair. However, your mind can play games and trick you into thinking of it as a need, i.e. “I need this pair of shoes so I can exercise better”.
Say you already have a laptop, but you convince yourself that a tablet is a “need” because it can make studying easier. That’s another way of transforming a “want” into a “need”.
As we’ve explained, it can be tricky trying to separate the two. The best way to start is to list down your personal definitions of “wants” and “needs”. This way, you’ll have a guideline to fall back on when your mind starts convincing you that “wants” are really “needs”. Be as objective as you can.
Next, write down your “needs” and “wants” according to the guidelines you’ve set up. Now see if there are “wants” that are too frivolous and should be eliminated. Cross them out.
Track your current expenses. If possible, try and keep all your receipts, even the simplest ones. Do this for a month or two and you’ll begin to see your spending pattern. Are you spending too much money on clothes? Are you paying for a very expensive phone plan that isn’t actually useful?
Create a budget. List down all the “needs” first and make sure your income can cover them. The remaining money can be used for some “wants”, but don’t let yourself fall into the trap of impulse purchases. Before you spend on any “wants”, just ensure that you’ve covered your priorities first.
Identifying the difference between “needs” and “wants” is the cornerstone of money management. This enables you to prioritize and figure out what expenses are necessary and which ones can be deferred.
It’s not that you should avoid “wants” altogether. Instead, you can set these as goals. For example, if you want a car, you should set this as a goal and start saving up for it.
Finally, remember that savings are included in the “needs” portion of your budget. You need to learn to save and provide yourself with a nice nest egg for retirement someday.
How do you determine your wants versus needs? Are you successful in prioritizing your expenses? Share with us in the comment box below!