HAVING A CLEAR UNDERSTANDING AND ABILITY TO DISTINGUISH BETWEEN “WHAT YOU NEED” VS. “WHAT YOU WANT”, IS AN IMPORTANT STEP TOWARDS SUCCESSFUL MONEY MANAGEMENT.

You should be able to categorize your needs and wants clearly in order to use your money wisely.

Needs are non-negotiable absolute requirements of your life.
Wants are not necessary but can make you happy. In other words, desire or luxuries.

But it is not always easy to differentiate one from another. This is because there is no universal bifurcation between a need and want. It is always a personal decision & depends on an individual’s financial and lifestyle situation. What is want for one can be a need for someone else.

Being a personal decision, the differences between wants and needs blur even further due to the following reasons:

1. Delusion
   People try to justify their luxury purchases. They rationalize it by saying “I need” this instead of saying “I want” this.
   For example, say you have a perfectly functional smartphone. Now a newer model comes along and you WANT it. You will justify its purchase by thinking that the newer model has so many new features that it will make life easier.
2. Peer Pressure
   More often than not people define their needs not only on what they would like to have but also on what others have. Your surroundings play a big role in deciding your needs and wants.
   For example, having a small car can easily fulfil your need. But if a lot of your friends have bigger cars, you will see it as kind of a norm and will end up buying a bigger car (want) instead of a small car (need). If people around you have more than one car, you will convince yourself that you NEED a second car to maintain your social status, when clearly that second car is nothing but a WANT.

It is important to remember that by fooling yourself in believing that a want is a need you are harming no one but yourself. This confusion of wants vs. needs will have a huge impact on your future financial situation.

Being guided by all the latest “must-haves” you will end up spending your hard-earned money on unnecessary things which will lead to debt and stress. Once you become a slave of your wants you will never be satisfied and will always want more.

It is always better to spend money on something that will keep you and your family rich in future, instead of spending it on things that will make you look rich today.

Wants are desires and luxuries which should be treated as such. When you know you are spending on luxury, you can enjoy the same when you can afford it as a reward for your hard work and be happy about it.

If you are aware of your wants and need you can achieve financial independence easily. If not, you will be caught in a vicious circle of it.