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differentiate between needs versus wants

How to Differentiate between Needs and Wants

An important part of building wealth and being financially secure and successful is to learn how to differentiate between needs and wants. Of course there are other important factors, but if you can’t honestly differentiate between needs and wants, then you’re going to struggle at winning financially. And simple math is the culprit. As much as virtually all of us would like to have all the money in the world to both buy all of the thing we want and also pay for the things we need (both for today and for the future) and do the things we really need to do for our long-term financial stability and success, the truth is that most of us simply don’t have the money for both.

So how do you differentiate between needs and wants (true needs and wants)? Read on to find 7 powerful principles that will help you know how to distinguish between your needs and your wants and to find financial success by differentiating between needs and wants.

1. Understand the true difference between needs and wants.

One of the most important factors if you want to win with your money is to be able to (rather, be willing to) know the difference between needs and wants. So let’s look at needs versus wants at the simplest level:

Need = something you have to have for basic survival

Want = everything else 🙂 

It’s always funny to me when I hear others say things like “Well, we needed a new car because the old one was becoming unreliable” or “We needed a bigger house” or “I needed to get a (new) smartphone.” You may want all of those things, and it may even make sense for you to have some or most or all of those things, but that doesn’t mean you need them.

True necessities can be boiled down to just a handful of things: food and water, basic clothing, shelter, transportation (if your feet won’t get you everywhere you need to go), and basic utilities.

You need shelter, but you don’t need a larger or nicer home. You need transportation, but you don’t necessarily need a car, and you definitely don’t need a new car. You may need water and power and sewer, but you don’t need cable or even internet (unless you work from home and it is required for your work, for example). And I admit it would be really inconvenient and I wouldn’t generally advocate it, but you don’t actually even need a cell phone, let alone a smartphone. 🙂 (You would just have to plan and coordinate better, like they did in the olden days. Wo-ah!)



2. Don’t let your wants turn into needs.

Once you know what a need really is, don’t let your wants turn into needs. In other words, don’t go convincing yourself that something that is really merely something it would be nice to have is something you have to have because it is safer, or it will save you more money in the long run (when really it won’t), or you or the kids have to have it for a reasonable standard of living—things like that.

Keep wants as wants, and buy them only as you can afford them and if it makes sense based on your overall financial goals. Because honestly, there are a lot of things we can “afford” if we don’t worry about getting out of debt or  saving up for large expenses that are eventually going to come, or building an adequate emergency fund, or investing for retirement, or saving to help pay for our  kids’ college educations. But that doesn’t mean we should.


3. Decide to want less.

Another big factor in financial success, after learning to honestly differentiate between needs and wants, is to then choose to want less. By giving up or doing without some of your wants, you can make big strides toward reaching your financial goals.

If you have read many personal finance articles or books or blogs, you have likely heard of the latte factor. It is basically the idea that it is the little splurges in our lives—not necessarily crazy over-the-top spending—that often keep us from building financial security and wealth. And what is the remedy to this wealth killer? Perhaps at the most basic level, it is to decide to want less.

That does not mean we decide to want less just to deprive ourselves, but rather we decide to want less so that our future selves are ensured an awesome retirement, so that our children have paid-for college educations, and so that we can be self-sufficient and can live each day without the stress of debt and living paycheck to paycheck.


4. Decide to be happy with what you have.

Going along with deciding to want less is to decide to be happy with what you already have.

You can find a deep financial peace and well-being and contentment not from always buying more but from learning to be happy with the things you already have. By being happy with what you have and what you can buy based on what you can truly afford given your income, you won’t have to worry about being able to pay all of your bills. You won’t have to lie awake at night worrying about your medical debt or mortgage or car payments you can’t pay. You won’t have that persistent, nagging guilt about the things you know you should be doing like paying off student loans and consumer debt, saving for emergencies, investing for retirement and for your kids’ college, paying off your mortgage, saving for large expenses and purchases such as car and house repairs and a car replacement, and so on. And you will be able to live in peace without the continual stress of debt, late payments, and more month than money as you barely scrape by, always living paycheck to paycheck.


5. Make a budget that appropriately accounts for needs and wants.

Based on your own financial situation, create a budget that covers all of your needs (including saving for large expenses and purchases and investing for retirement, for example, which really are needs) and as many of your wants as you can truly afford and that bring true value to your life.  I include that last bit about true value because even if it is something you want, like a collection of moose heads, for example, and even something that you can afford in the sense that you would not need to go into debt for it, it still may not be something that is worth more than saving or investing or giving away more money to those who are in greater need.

When it comes to your money, it is important to sit down with your spouse and write down what your core values are. Those values will guide you as you make the crucial decisions about how to save and invest and spend and give your money.


Related articles:

9 Simple Steps to Help You Finally Start Saving Your Money
13 Top Tips to Help You Stick to Your Budget
Contentment: 9 Powerful Principles That Lead to Financial Success


6. Choose to accept that less is enough.

Perhaps the biggest factor for financial success when it comes to differentiating between needs and wants (and being able to give up some of our wants, if appropriate) is this: you get to choose how much is enough. You choose whether or not you fill fulfilled or deprived with what you already have. Your happiness and contentment are to a large extent a choice that you make. Generally speaking, you really do decide your own happiness. You can choose to find happiness in having more stuff, or you can choose to find happiness in having less stuff. You can choose to find joy in spending money, or you can decide to find joy in saving and investing money. You get to choose.


7. Teach your children the difference between needs and wants.

It’s also important to teach our children from a young age the difference between needs and wants as an important part of their character development. You can leave a wonderful legacy of good financial habits and crucial financial knowledge for your children, and part of that knowledge should be a clear understanding of needs versus wants and the fact that we generally cannot have everything that we want, but we can definitely choose to be completely content with the things that we have.

Would you like a simple way that you can teach your kids the difference between needs and wants? Check out this fun (free) resource that I got from my six-year-old daughter’s kindergarten class, a short lesson that teaches the difference between needs and wants, I thought it was so cool that they are teaching the kids this kind of stuff when they are so young and (I hope!) impressionable!

And here is the link to the fun video that went along with the lesson. (Go, Moby!)

Related articles:

21 Must-Know Tips to Help You Spend Less Money
9 Best Tips to Reach Large Financial Goals
16 Surefire Strategies to Help You Stop Living Paycheck to Paycheck



I know that it is difficult sometimes not to justify our wants as needs. I know the temptation to spend all your money (and then some) is strong. There’s so much stuff available to buy, and it might seem like all of your family members and neighbors have everything they want. That can make it even harder.

But if you want to reach your own financial goals, you’re going to have to get over worrying about what your neighbors have and the trips they’re able to take and the stuff they’re able to buy, and instead just focus on your own financial future—your truly best financial future.

You will be able to make huge strides toward financial success as you get out of debt, save up a large emergency fund, and save for purchases and expenses so you can pay for them in cash. You will reach that success as you invest enough in your retirement fund to provide for yourself comfortably throughout the remainder of your life.

That success will come when you realize you have money that you can give to worthy causes or you have a financial legacy you can leave for your children. It will come when you are able to control your money, and your lack of planning and your debt don’t control you.


Do you struggle to differentiate between needs and wants? Or do you find yourself frequently justifying needs and wants? What have you done to stop justifying wants as needs? Leave a comment below and let me know. I would love to know your thoughts on this somewhat controversial topic!

differentiate between needs and wants

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