Needs Vs Wants: Tips to Create a Budget with Room for Both

If the reality you are facing is a budget that is stretched too thin, the next obvious step is to look for spending you can eliminate. That being said, it’s no fun to go through life only buying things you absolutely need. The trick is to create a sensible, flexible budget that makes room for both needs and wants. In this article, we’ll take you through some tips to create a budget that helps you spend responsibly while also creating some wiggle room for some good stuff.

Understanding Needs vs Wants


To put it plainly, your financial needs are the things that are absolutely necessary for you to be able to live and work. They are your ‘big’ expenses each month. They’re the things that keep you warm, dry, fed and mobile. Some of the most common expenses that fall under the needs category are:

  • Rent or mortgage payments
  • Car expenses or public transport costs
  • Insurances
  • Grocery spend
  • Utility bills

You might have a lot of things in this pile that are wants masquerading as needs. For example, yes we do need an internet subscription today. But you might want the highest speed, most expensive package. Our choices can move a portion of our spending from a pure need to a partial want.

Debt reduction is a need

One of the most commonly overlooked necessities is debt repayment. If you have any outstanding debt, then you should be budgeting for debt reduction.  To avoid late payment charges and negative hits to your credit score, you must keep up with all minimum monthly payments.  However, if you want to pay off your debt sooner, you should put as much as you can afford every month towards your debts. Paying off your debts should be a conscious need.


Wants are the little extras that bring extra fun or comfort into your life. You might think you can’t live without them, but if push came to shove, you’d survive if you cut them out. The most typical things that fall into this category are:

  • Vacation expenses
  • Gym memberships
  • A portion of your clothing budget
  • Coffee and lunch budgets

The hard part about disassociating your needs from your wants is that it requires taking a long, hard look in the mirror and being honest about what you can actually live without.  For example, streaming is great but subscribing to Netflix, Crave and Amazon Prime might be something you can rethink if you are looking for cost savings. The same applies to choosing brand names over generic ones or a high-cost designer coat over a functional one. You might not get the same nice experiences in your leisure time, but it wouldn’t be a show-stopper.

Create a Balanced Budget – The 50-30-20 Rule

To create a budget that has room for both your needs and wants, you need to prioritize all your spending. Looking at your current spending and divide all your outgoings into two categories: needs and wants. Put every single one of your expenses into one of the two categories.

Be honest with yourself when you do this. Your rent, car insurance and grocery spending are all definitely needed, but three streaming services plus a cable package? Something in there is probably a want.

Creating this distinction doesn’t mean that you will then cut out all the great stuff in your want pile – that would be no fun. Rather, it gives you the overview you need to make a balanced budget that makes room for some wants whilst still allowing you to save or put more money towards debt reduction.

Once you have created your need and want lists, it’s time to create a budget that creates room for both.

A good rule for distributing your money is the 50-30-20 rule, which means that:

  • 50% should be spent on things you absolutely need (rent, groceries etc.)
  • 30% should be the maximum you spend on things you want (gym memberships, vacations, clothes, fancy food etc.)
  • 20% should be immediately saved (goals or retirement) or put towards paying down debt.

Using this rule, you get to spend on your wants guilt-free. There’s absolutely no issue with buying a fancy winter coat rather than a more budget-friendly one, so long as it fits in within the 30% bracket of your overall budget. The key is, to be honest about the difference between your needs and wants so that you make more conscious choices about how you spend money.

If you have any debts, allocate as much as you can afford to pay them off. This will make your ‘need’ pile take up most of your available budget each month for a while, but in the long run, it will free up money you are spending on interest today to be able to afford more of the things you really want.

Looking for Expense Reductions

Here are some additional tips to help you look for ways to target items for savings:

  • Nothing should be off the list. If you are serious about cutting back, you have to look at everything.  Live in a city with good public transit?  Even getting rid of your car may be something you want to think about.
  • Get competitive quotes for everything. Taking a little time to compare insurance premiums, cell phone plans and other costs can result in tremendous savings.
  • Comparison shop. Don’t always assume the sale price at one store is the best deal. Look at alternate brands. You can often get comparable quality merchandise for a lower price just by switching stores or switching from the name brand to the store brand.
  • Eliminate impulse buys. Last-minute shopping decisions are almost always a want and not a need. Make a list and set priorities.
  • Save ahead for big-ticket items. You don’t have to do without every wish or extra item. You just have to be sure you can afford it.  Put an amount in your monthly budget to save up for large-cost items like a vacation.