“I need to go on vacation.” “I want a new car.” We use “need” and “want” interchangeably in everyday life. But needing something versus wanting something is very different. And in finances that could mean the difference between financial independence and overspending.
Needs are essential for your well being. They are critical for your day to day and to maintain a functional life. This includes things like housing, groceries, and transportation. Wants, on the other hand, are things that improve our quality of life. They could be considered non-essential upgrades. You might consider eating out, vacations, and the latest iPhone 📱 as wants.
Living a life just fulfilling your needs is boring. It’s the extra things that make life exciting. You can live a life with both your needs and wants if you find the right balance. Some experts recommend a 50/30/20 rule. 50% of your earnings go toward your needs, 30% toward your wants, and 20% toward savings. You can adjust these ratios based on your current situation. For example, you might need to put 60% toward needs, 30% in wants, and 10% in savings because you are paying off a loan currently. Make the adjustments to fit you and the lifestyle you want.
MMM tip: Think about your next planned purchase. Is that a need or a want?
Until next week!
Dariene
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Disclaimer: This newsletter is for informational and educational purposes only and should not be considered financial, investment, tax, or legal advice. I am not a licensed financial advisor. Please consult a qualified professional before making any financial decisions.
