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Back to Basics: How to Determine Needs vs. Wants

Every basic budget has two categories: needs and wants.

How to differentiate? Well, if you can’t afford to live without something, if it’s a means to helping you function in society, it’s a need. If you can shrug it off, it’s a want.

Traditionally needs have included housing, transportation, food, basic clothing, savings and health care. While wants include all the miscellaneous products, past-times and services we pay for to “ameliorate” our lifestyles.

If only balancing a budget was that simple. Americans have sunk nearly $1 trillion deep into credit card debt, putting our Jamba Juice (Stock Quote: JMBA) shakes and Lululemon  (Stock Quote: LULU) yogawear on Amex (Stock Quote: AXP).  We’re not charging our fruits and vegetables. We’re mainly taking loans out to afford the “miscellaneous.” 

We’re learning the hard way we’re pretty awful at balancing a personal budget.  For too long, we’ve been a society that thinks it has to have it all.  But let’s go back to basics for a moment. A quality life is not about accumulation.  It’s about creating value.  It’s about being selective, making the best decisions, identifying our needs, simplifying our costs and putting our wants in hierarchal order. Who cares what kind of car the neighbor’s driving?

As we all take a closer look at our spending habits during this global financial meltdown, chances are we’ll see we’re allocating our hard-earned money towards many areas we consider “needs” that should really be “wants,” and that at the end of the day (especially today when the economy is in the toilet) we can probably do without some of the wants, especially if it means contributing to a higher good instead—personal savings.

At MainStreet we want to help you as you redraw the lines between your needs and wants and propose ways to save and make the most of everything in your budget. 

Along the way, we realize it’s important to strike a balance between your needs and wants. We’re not suggesting you do away entirely with your yoga classes and $4 Starbucks (Stock Quote: SBUX) for the rest of your life. But if you can’t give that stuff up, what can you do away with? In what ways are you willing to save?  It’s not about sacrifice. It’s about selectivity. What means less to you than your iTunes addiction? How can you minimize the costs that are inevitable such as your car payments, housing costs, health insurance, food and gas?  How to create more breathing room in our budgets?

To answer those questions you have to first define what’s important to you right now. As I write in my book, You’re So Money, what’s your “good life?”  What does quality mean to you? What does happiness mean to you? And not for the next 50 years, but how about the next few years? Where do you want to be financially, career-wise, personally, geographically, etc.  Do you have to send a child to college? Do you want to move? Do you need some serious health coverage? Do you want to have a child? To realistically set a day-to-day budget, to know what’s truly a need and truly a want, we need to commit ourselves to a higher goal, to a bigger picture than what’s in front of us. 

And there lies the silver lining to all of this.  Never before has creating a budget, tracking our needs and wants been so inviting.  It’s an excuse to take our mind off of the current gloom and look forward to better days, a time that will arrive again….eventually.    

So take this moment to put yourself and your family first. Remember the three C’s to financial freedom: Cash, credit and courage. Your to-do list: Erase debt, create ways to boost income and commit to balancing your needs and your wants.  It’s how you’ll write your ticket out of this tough economy.

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