Needs versus Wants
How can you bring your fixed expenses below 50% of your take-home income? The answer lies
in part in differentiating between Needs and Wants. Knowing what you absolutely need versus
things that you would prefer to have, or things that you want, is essential to building a 50-30-20
MoneyPlan for yourself and your family.
We all have basic needs in our life -- shelter, clothing, and food. Each person in the family has
additional needs that cost money. However, there is a difference between Needs and Wants. A
Want is something you would like to have but could live without. It is important to discuss with
your family what their Wants and Needs are and how these fit into the family's financial plans.
A car may be a Need for the family, but a new car most likely is a Want. Would you consider a
radio in the car a need? What about a CD player? A phone in the house may be a Need for your
family, but a cell phone could be a Need or a Want.
When deciding whether an item is a Need or a Want, it helps to ask yourself the following
questions:
1. Could you live without this for 6-months to a year?
2. If you didn’t have this, could you live in safety?
3. Would you keep spending money on this if you lost your job and had only unemployment
income?
4. Does a less expensive version of this exist that would fulfill the same function?
Now go through the following list and mark each item as a Need or a Want. You should have
each member of your family go through this list, and add their own items if necessary, to discuss
your family’s Needs and Wants. In addition to identifying Needs, think about what monthly
minimum expense would satisfy this Need without the Need turning into a Want.
Take your time in completing this worksheet. Discuss it with your family, and don’t be afraid of
debating how much you actually need to spend on an expense versus how much you would want
to spend on it.