When creating a monthly budget, one of the most important steps you need to take is to categorize your expenses into “needs” or “wants.” It is also one of the hardest steps because what is a need versus a want can vary from person to person. It can also be easy to classify wants as needs if you are used to them and find it hard to imagine living without them. Learn how to better budget by breaking your expenses down into needs and wants.
What are wants versus needs?
When you fill out a budgeting sheet, you categorize your expenses as either wants or needs. This separates your expenses into what is absolutely necessary for your well-being and survival (needs) versus what you would like to have but is not essential (wants).
Those things that might seem like a need but are actually a want
The line between wants and needs is often blurry, and it can be difficult to distinguish which expenses belong to which category. There are different reasons for this.
Is saving a need or a want?
If your budget is tight, it’s easy to stop putting money into savings or long-term financial goals such as:
The 50/30/20 Budget Rule
If you are using the 50/30/20 budgeting system, your expenses will be distributed as follows:
Adjusting spending on necessities
When you need to cut your spending to save money, eliminating wants is often an easy and first place to make changes. For example, you might give up your gym membership and start running in your neighborhood. But just because an expense is a need doesn’t mean it should stay the same.
Frequently Asked Questions (FAQs)
– What is budgeting?
– What is zero-based budgeting?
Source: https://www.thebalancemoney.com/how-to-separate-wants-and-needs-453592
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