Needs vs wants

What It Means

Needs are the costs you must pay to live, to earn an income and to protect what you have, and wants are the extras you'd like but could do without. The Consumer Financial Protection Bureau (CFPB) sorts needs into three groups: basics such as food, clothing and shelter; what your job requires, such as reliable transportation; and what protects your money and property, such as emergency savingsEmergency fundMoney set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly. See more and insurance. Wants are upgrades and nice-to-haves, like a gym membership or buying coffee out every morning.

How It Sounds at Home

• "Do we need it, or do we just want it?"
• "Groceries are a need, takeout's a treat."
• "Let's cover the bills first and see what's left."

The Breakdown

Worked example. Maya takes home $3,400 a month and sorts her costs (made-up numbers):

That leaves $635 unassigned, which she can send to more savings, extra debt payments or more wants.

What the result means. Needs come first, and wants share whatever is left. Many costs are part need and part want: basic groceries are a need while a restaurant meal is a want, and a car that gets you to work is a need while paying extra for a fancier model is the upgrade, which puts that part on the want side.

Good to Know

The CFPB's needs-and-wants lessons call covering every need before spending on wants a wise habit. BudgetingBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more lessons from the CFPB and the FDIC's Money Smart programSave More TomorrowA savings plan by Richard Thaler and Shlomo Benartzi in which you agree now to raise your retirement contribution each time you get a pay raise. See more advise the same kind of sorting: separate needs and obligations from wants, set priorities, and when income can't cover everything, choose what matters most and what you can go without. Bank of America's Better Money Habits guide gives a similar list, with rent or a mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more, a car payment, utilities, groceries and minimum credit card payments as needs, and streaming, shopping and vacations as wants.

Related Terms and Categories

• 50/30/20 rule

  A budgeting guideline that splits after-tax income into 50% for needs, 30% for wants and 20% for savings and paying down debt.

• Discretionary spending

  Money spent on things you want rather than need, like eating out, entertainment and travel. In government, the spending Congress sets each year.

• Fixed expenses

  Costs that stay about the same every month, such as rent, a car payment or an insurance premium, usually due on a set date.

• Budget

  A plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it.

• Impulse spending

  Buying something on the spur of the moment, without planning for it or checking it against your budget.

Household money and budgeting