Budgeting 101: Needs vs. Wants
An early lesson for many kids is learning the difference between a need and a want. To be fair, this can be a difficult concept for adults, too. Sometimes our wants can blur into what seems like a need.
A study released in 2025 found that 26% in the U.S. are spending more than their income and 56% are having trouble paying bills and expenses. A good rule of thumb is to put 50% of income to needs, 30% to wants and 20% to savings. You can also follow the zero-based budgeting method. This focuses on planning your monthly budget so every dollar is allocated for a use, including savings. Either way, knowing the difference between a need and a want will help you meet your goals.
💡Pro Tip: Start to talk about these with your kids at an early age so they can start understanding the difference. For instance, a trip to the grocery store for dinner is a need but a trip to the ice cream store is a want.
Needs
A need is considered a necessary expense to maintain a basic, healthy lifestyle. Needs will vary by person as well. Someone may not think a car is necessary while others will, for instance. Here are a few examples of what would fall into these categories.
- Housing: Home loans, rent, home improvements, property taxes
- Transportation: Car loan, gas, bus or train passes
- Groceries: Food and cooking supplies, household cleaning items
- Utilities: Electric, water, sewer, cellphone, Internet, trash removal
- Health care: Health insurance premium, preventive care appointments and other medical expenses, flexible spending account (FSA) or health savings account (HSA) contributions, prescriptions
- Basic personal care: Basic hygiene products like soap and toilet paper
- Childcare and education: Day care, child support, tutoring services
- Insurance: Necessary insurance like home, car, and life insurance
- Minimum debt payments: Credit cards, student loans and other loans
Wants
Also known as discretionary spending, these things are nice to have but aren't necessary for daily life and survival. There can be some grey areas here. If you follow the 50-30-20 rule, the goal is to generally keep wants around 30%, so be the judge if these things are putting you over every month and taking away from savings and needs.
- Eating out: Restaurants, coffee shops, delivery meals
- Entertainment: Movies, museums, amusement and water parks, concerts, sporting events
- Travel: Vacations or day trips
- Hobbies: Crafts, sport activities, travel related to activities
- Memberships and subscriptions: Gym memberships, magazine and music services, streaming subscriptions
- Shopping: Extra clothes, furniture, decor, electronics
- Technology upgrades: Phone updates, updated plans for more features
- Personal care: Spa services, manicures, waxing, massages
Making Hard Decisions
Your discretionary spending should be the first place you look if you're struggling to meet your monthly expenses or unable to build an emergency fund. Start with the easiest things to cut and then make some harder choices, even if just for a month or two. You may realize it's not as important as you thought it was. Talk about these choices with your kids along with your goals for your savings.
It's never too early to start making goals and saving for retirement. A wealth advisor can help you save according to your present and future goals and income.
Disclosure:
The information provided is for educational purposes only and is not intended to provide specific financial advice or recommendations.
