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Needs Vs. Wants: Financial Literacy 101

The first step to spending better and getting your finances in order is to understand where your money goes. Are you spending your hard-earned cash on needs or wants?

Why is it important to recognize the difference between financial needs and financial wants? Because understanding what your needs and wants are will help you make better decisions about how you spend your money—and that will help you improve your financial situation.

Many people who think they don’t earn enough money, but when they go through the exercise of determining their needs vs wants, they come to realize they can pay their bills and get by comfortably. You can make your money go further when you put your needs first.

So What Are Needs vs. Wants?

What are the differences between needs and wants? Let’s take a look.


Needs are those things that are essential for you to live day to day. You need these things, quite literally, for your safety, security, and livelihood. Needs can vary from person to person.

For example, a personal car may be a need for someone living in the suburbs and commuting to work, but it may be a luxury for someone in the city living close to public transportation. If you can’t live day to day without something, it would be a need.

Here are a few examples of needs:

  • Transportation to and from work
  • A safe and secure place to live
  • Health insurance to cover unexpected medical costs
  • Basic nutritious food
  • Clothing
  • Water
  • Electricity
  • Internet connection for remote work
  • Cell phone
  • Savings for a rainy day


If needs are the essentials you must have in order to live safely, wants are the things that help you live more comfortably. Some things are clearly wants, such as an exotic vacation. Others are not as clear cut—for example, you definitely need clothing, but do you need the latest styles when your current clothes are still functional?

When deciding if something is a need or a want, a helpful question to ask yourself is, “Can I make do without this?” If you answer no, then ask, “Is there a free or more affordable alternative to this purchase?”

Examples of wants include:

  • Eating out
  • Going to the movies
  • Another pair of shoes
  • Streaming TV subscriptions
  • The latest gadgets
  • Vacations
  • A second car or motorcycle
  • Home remodel
  • High-end cosmetics
  • Gym membership

Can You Tell the Difference?

Your turn. Below is a list of common expenses you might have—can you tell which are needs and which are wants?

  1. Upgrading your old functional phone to the latest model
  2. Picking up groceries to make dinners for the week
  3. Adding extra snacks to your grocery cart
  4. Paying your utility bills
  5. Setting aside money for a rainy day
  6. Buying a present for your best friend’s birthday


Needs: 2,4,5

Wants: 1,3,6

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What Are Family Needs and Wants?

Determining your needs and wants is simple enough when it’s just you. But with a family, sometimes your needs list gets a little longer. For example, you may have perfect vision, but if your child scores poorly on an eye exam, you may need to add glasses, optometrist visits, and vision insurance to your needs list.

When figuring out family needs vs. wants, start with yourself. Figure out what is critical for you, then move on through each additional family member, taking their needs into consideration and adding them to your list. Consider involving your family members in this discussion and getting their input. Going through this exercise will help you see a complete picture of what your family can and can’t live without.

Needs vs. Wants Examples for Kids

Even young children can begin learning the difference between needs and wants. If their eyes glaze over when you attempt to explain it to them, try taking them on your next shopping or grocery trip. As you go down the aisles, point to various items and quiz them on which are needs vs. wants. Explain to them the importance of budgeting and making sure you have enough for your needs before indulging in some of your wants.

Above all, when teaching your kids, help them see that budgeting for needs vs. wants is a positive thing. For example, if you’re grocery shopping with your kids, you might invite them to choose one small want item they can add to the cart, once all the needs are accounted for.

Finding a Place for the Wants

Needs may be the essentials, but that doesn’t mean wants are a bad thing. In fact, wants play an important role in helping you live a more enjoyable and comfortable life. Wants only become a problem when you prioritize them first or purchase more of them than you can afford.

So go ahead and make your needs vs. wants list, then take the next step in controlling your money by making a budget. Once you’re sure you have enough set aside to cover your needs, you can confidently choose a few of your favorite wants, slip them into your budget, and give yourself a pat on the back—you deserve it.