Difference Between Needs vs Wants
Many people don’t understand or care about the difference between needs vs wants. It’s also not uncommon for people to think it’s the same thing. Some even think the words are interchangeable.
However, as I’ll show in this article, needs and wants are not the same. And, it’s important to understand the difference between them.
Why Differentiate Between Needs and Wants?
Differentiating between needs and wants has a direct impact on your personal finances. It changes the way you budget, and spend money.
By understanding the difference between needs and wants, you’ll be able to manage your money more efficiently.
Needs vs Wants
Let’s start by answering some of the most frequently asked questions, namely:
- What are needs & wants?
- How are needs and wants different?
- What are some examples of needs and wants?
What are needs & wants?
Needs Definition & Meaning
According to the Collins Dictionary: “If you need something, or need to do something, you cannot successfully achieve what you want or live properly without it.”
It’s not a great definition, but it’s actually one of the better dictionary definitions.
From a personal finance perspective, we can define needs as follows:
Needs are essential items for your survival, or to keep up your standard of living. If your needs aren’t being met, you’ll regress and be worse off than you’re now. They include basic things like food and water, but can also include other things like employment and paying your bills.
Wants Definition & Meaning
According to Lexico (powered by Oxford), wants are to “have a desire to possess or do (something); wish for.” As an example, they use: “I want an apple.”
It’s a pretty basic definition that doesn’t really cover the financial aspects of it.
From a personal finance perspective, we can define wants as follows:
Wants are non-essential items that may, in your opinion, make life more enjoyable. These items are not necessary for your survival, or to keep up your standard of living. It includes things like wanting a new car when you don’t need one.
How are needs and wants different?
Here are the 10 main differences between needs and wants:
- Needs are limited whereas wants are pretty much unlimited, based on how good your imagination is.
- Needs are essential things while wants are non-essential things that are nice to have.
- Needs are mostly focused on the present. Wants, on the other hand, mainly focus on the future.
- Needs arise out of necessity and self-preservation. Wants arise out of desire or what’s perceived as self improvement.
- Not getting what you need may, in the best case scenario, cause you to be worse off. In the worst case scenario, it may lead to disease and even death. Not getting what you want won’t cause you any harm. In most cases it will simply mean you remain where you are.
- Basic needs such as food, water, warmth, shelter, and rest don’t change much over time. Wants often change all the time.
- If your basic needs are met it can lead to contentment. Wants seldom lead to contentment. As one is satisfied another one arises.
- Needs should be satisfied first before wants can be satisfied.
- Needs should always be met, if at all possible. Not all wants should be entertained.
- Needs should be prioritized in your budget. Wants that fall under discretionary expenses you can get by without.
What are some examples of needs and wants?
Here are some practical examples of needs and wants that’ll help to illustrate the differences between them.
Perhaps the best way to explain basic needs is to compare it to being marooned on an island. A good example is the hit reality series Survivor.
Imagine you’re marooned on an island. What do you need to survive?
Your basic needs will be finding water and food. You’ll need shelter to protect you from the elements. You’ll also need clothes or fire for warmth. And, you need to rest. Those are your basic needs. Without them you won’t last long.
However, your needs are not only limited to your basic needs for survival.
As mentioned in my definition of needs, the things you need to maintain your standard of living are also needs. Without them, you’ll regress and be worse off than you’re now.
Here are some examples of needs:
Assume you need your own transport to visit customers. If you can’t pay for your car, you can’t work. In this example, you need a car. It’s not a luxury item that gathers dust in your garage. It’s an essential item.
Assume you have a mortgage. You need to pay it. If you default you may lose your house. And, you may also get a bad credit rating which may affect you in many other ways. Paying your mortgage is an essential expense. It’s something you need to pay.
If you work in an office you need to wear proper clothes to work, as prescribed or expected by your employer. If you don’t comply it may cost you your job. This doesn’t mean you have to buy expensive brand names. But, you need to have an item in your budget for essential work clothes.
Wants are non-essential items that you don’t need but that you feel will make your life more enjoyable.
Your list of wants may include some of the following examples:
You want to get a brand new Mercedes when you have a perfectly good, reliable car.
You want to have a luxury holiday in Paris, France.
You want to buy a bigger house when your current house is more than big enough.
The list is nearly endless. It really includes anything that’s not essential. It can be imported red wine, an expensive meal in a fancy restaurant, a new boat, fancy shoes, brand name clothes, or a holiday house.
In 1943 a famous paper was released by Abraham Maslow, titled “A Theory of Human Motivation.” In this paper Maslow mentions a hierarchy of needs that spans five levels, namely:
- Level 1: Physiological Needs – Food, water, warmth, and rest.
- Level 2: Safety – Feeling safe and secure.
- Level 3: Belonging and Love – Meaningful relationships.
- Level 4: Esteem – Feelings of accomplishment.
- Level 5: Self-Actualization – Achieving your full potential.
Maslow’s needs hierarchy describes the various stages of growth humans go through. Each stage must first be satisfied before you can move on to the next stage. The goal in Maslow’s theory is for humans to reach the fifth level, namely self-actualization.
Levels 1 and 2 are your basic needs.
Levels 3 and 4 are your psychological needs.
Level 5 is your self-fulfillment needs.
A good way to illustrate Maslow’s theory is to picture it as a “needs pyramid”.
Your basic physiological and safety needs are at the bottom. Once they’ve been satisfied you can move to the next level which is love & belonging, until you reach self-actualization.
For example, based on Maslow’s needs hierarchy you cannot move to having meaningful relationships when your basic needs haven’t been met.
Why is Maslow’s needs hierarchy, or “needs pyramid” relevant when differentiating between needs with wants?
There are two main reasons, namely:
1. Needs are not only about survival.
2. As you achieve more personal growth your needs expand as well.
Wants Can Turn Into Needs
As your circumstances change or improve, it’s more than likely that your needs will change as well. What you previously considered as a “want” may change into a “need.”
It’s a perfectly normal part of life.
For example, assume you have no need for a car in your current job. A car would be classified as a “want.” However, what happens if you get offered a high-paying job that requires you to have your own car?
If you accept the job offer, having a car becomes an essential item, and therefore a “need.”
Be careful not to turn something you can really do without into a need.
For example, you don’t need a new car but go ahead and buy one anyway. Now that you have your new car you need to maintain it.
If you’re wealthy, buying a new car that you don’t really need isn’t the end of the world. If you’re barely scraping by every month, it’s not a good idea to put unnecessary strain on your finances.
How to Budget for Needs and Wants
By separating your needs and wants you’ll be able to compile a more effective budget that’s easier to manage.
On your budget worksheet you should have the following:
A needs list for essential items
List all the essential items you have to pay such as groceries, mortgage or rent, and utility payments. These are items that must be paid, and should be prioritized.
A wants list for non-essential items
List all the non-essential or nice-to-have items, in order of priority. Depending on your financial position, you may be able to pay for at least some of them.
Always try to stick to your budget. No budget is cast in stone but it will help you to manage your money more efficiently. It gives you a good overview of your income and expenses. And, it will show you what non-essential items you can afford.
The 50 30 20 Budget Rule
Senator Elizabeth Warren and her daughter wrote a book “All Your Worth: The Ultimate Lifetime Money Plan.”
In this book they propose a 50 30 20 budget rule. It states your disposable income should be allocated as follows:
50% for Needs
30% for Wants
20% for Savings
Although this ratio has become very popular over the years, it’s not workable for everyone.
Find a Balance Between Needs and Wants
Needs vs Wants doesn’t mean either / or. They are not really opposites. They are simply different from each other, and should be managed differently.
Always try to maintain a good balance between needs and wants.
Needs are limited whereas wants are mostly unlimited. However, as far as your budget is concerned, there must be a balance between them.
This doesn’t mean 50% of your expenses should be for needs and 50% for wants.
If you compare needs and wants to a meal, your needs would be the healthy plate of food you have for dinner. Your wants would be the little dessert you have after dinner.
Wanting things you don’t really need is not necessarily a bad thing.
If you can afford it, there’s no need to deprive yourself of everything that’s not essential. You deserve to enjoy life. It’s all about how you manage your finances.
On our personal finance home page we mention the old proverb: “Money is a good servant but a bad master.” You have to control your money or it will control you.
Tips on how to manage your "wants"
Here are 7 tips on how to manage and control non-essential purchases.
- Don’t get into debt for something non-essential – If you don’t have the cash for it, rather save up for it until you can afford it.
- Avoid impulse buying – If it’s not something you planned on buying in advance, don’t buy it. Think about it, and have a look at your budget. You can always get it later if you still want it and can afford it.
- Scale down unnecessary expenses – If you really enjoy something such as going out for dinner, you don’t have to stop doing it completely. Depending on your budget, you may just scale it down to say once a month instead of every week.
- Include it in your “wants list” in your budget – By including non-essential items you want in your budget, in order of priority, they become easier to manage.
- Can’t it wait? Ask yourself what will happen if you don’t get what you want. Is it just a nice-to-have item? If it’s not going to make a real difference in your life, rather just leave it.
- Can’t you spend the money on something better? You probably have a long list of the things you want. Some you may be able to buy right away. Others you have to save for. Before you spend money on a non-essential item, always ask yourself if you shouldn’t rather spend it on something else.
- Shouldn’t you rather first pay off more debt or invest it instead? Consider that in most cases, it’s better to first pay off debt than to buy something you don’t really need. It may also be a wise decision to rather invest the money.
Asking yourself all these questions isn’t about not granting yourself any luxuries. It’s about controlling your money and making wise, well-informed financial decisions.
To summarize, needs are essential items for your survival, or to keep up your standard of living. Wants are non-essential items that may, in your opinion, make life more enjoyable.
Needs and wants are neither opposing terms, nor mutually exclusive. They are simply different from each other, and should be managed differently. After reading this article, you should be able to establish a good, healthy balance between them.
Regardless of how wealthy you are, you can’t always have it all. But, by managing your needs and wants you can make your money last longer, and work harder for you.
Trust you’ve enjoyed reading this article about the difference between needs vs wants. Has it answered your question? Please let me know in the comments below.