Need Vs. Want

Understanding Needs Vs. Wants is
Crucial to Financial Freedom

Need vs. want - how do you distinguish between the two? A need is something that you must have in order to survive. In the well known Maslow's Hierarchy of Needs, Psychologist Abraham Maslow describes five different levels of needs.

Money can be used to help fulfill some of the needs on the lower two levels of the hierarchy. Examples of these needs are food, water, clothing, shelter, personal and financial security, safety, and well-being.

However, money can’t be used to fulfill the needs of the upper three levels. These needs include love, esteem, and self-actualization.

A want, on the other hand, is something that we would like to have, but don’t absolutely need. If we have to, we can get along without it.

Discretionary Income

Discretionary income is the money that is left over after the needs have been met and can be used for the wants.

For a person in debt, there is no discretionary income. Paying off the debt should be considered a need, not a want. This is crucial if the person wants to move from debt to financial freedom.

Need Vs. Want - How to Tell The Difference

It isn’t always easy to distinguish between needs vs. wants. To determine whether you really need to spend money on something, or if you just want it, you need to ask yourself a few questions. Let’s take an example.

Suppose you and your spouse have one car. Your spouse uses the car to get to work. You just got a new job. Now, you think you need another car so that you can get to work. Ask yourself these questions:

  • What do I think I need?
    I need another car.
  • Why do I think I need this?
    To get to work.
  • What would happen if I didn’t get it?
    I would either not be able to work or I would have to find another way to get there.
  • Is there some other way to fulfill this supposed need without spending money?
    Not really.
  • Is there some other way to fulfill this supposed need by spending less money?
    I could take the bus or carpool with a coworker.

By following these questions, we found that there is a need but it isn’t what we initially thought. The need was to get to work, not to buy a car. The alternatives are not as convenient as buying a car, but they are much less expensive.

If your goal is to achieve financial freedom, it is essential to understand need vs. want, so that you can live within your means and have extra income to put aside for saving. Sometimes, when we really want something, it is easy to rationalize it into a need. However, this exercise will force you to be honest with yourself. Remember, it is fine to spend money on a want if you have the discretionary income to buy it. However, if you are in debt or can’t afford it, just don’t buy it.

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