Budgeting means deciding in advance how you’re going to spend your money. Effective budgets provide for your need and help you achieve life goals. Providing for your needs requires you to distinguish between necessities and luxuries. People must have necessities or else they risk damage or injury. Clothing against the elements, the food to function and a safe place to sleep are necessities. Wants are everything else. Luxuries are wants that tend toward pampering yourself. Learning to distinguish between wants and needs is worth it to get what you truly want in life.
Make a Needs List
When budgeting, it’s a good idea to have a list of necessities. When allocating money, these must be paid first. Saving is included in necessities because emergencies happen. If you lose your income, savings take care of your needs. Do not include items such as your cell phone bill on your needs list. It’s not related to ensuring basic survival or promoting basic welfare. Educational expenses -- for instance, required school uniforms or books -- belong on the needs list because they further your long-term welfare.
Make a Wants List
After your necessity list, make a wants list. Some wants are justifiable while others remain luxuries. It can be difficult to distinguish between them, so you’ll have do some thinking. Identify which items help rather than indulge you or are close to being necessities. For instance, basic cell phone service for emergencies is nearly a necessity, so it’s a justifiable want. If your justifiable list costs more than your available funds, considering your values may help you identify the most important items. If you value giving, for instance, saving money to buy family members hoped-for presents may trump other wants.
Some luxuries masquerade as needs. For example, because you need to eat, it might be tempting to rationalize costly restaurant dining. When you are unsure, ask yourself whether a less expensive alternative exists -- a bus instead of a taxi, for instance. If a less expensive alternative exists, your purchase is probably a luxury. Don’t force yourself to never buy a luxury, though. That can lead to binge shopping. Instead, budget for luxury spending and choose your treat carefully. If money’s tight, you’ll need to save for a big luxury. Also, see if resourcefulness can stretch your money. For instance, some consignment shops are devoted to designer clothes.
The Magnetism of Luxuries
Luxuries sometimes feel as important as needs. If a luxury is part of your lifestyle, it might be difficult to imagine living without it. Likewise, if your peers all use something, it can feel risky not do the same, which gives the luxury artificial importance. Such feelings pressure you to buy. When temptation strikes, figure out why the purchase feels so important. Remember -- you can survive without luxuries. Walk away to think, realizing that saying no now doesn’t mean saying no forever. Decide to budget for the item instead of making an impulse buy. Then you’ll have time to find the best deal.
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