I bet we have all heard of the old adage – Always differentiate between your wants and your needs before making a purchase decision. Do you really need that item? Or is it just to temporarily satisfy your immediate gratifications?

Before we go in-depth, firstly we need to identify the difference between the two:

Need: Require (something) because it is essential or very important rather than just desirable.

Want: Have a desire to possess or do (something); wish for.

So basically wants are things that you can live without, things that you wish to have. Needs, on the other hand, are those that are essential to a person.

Maslow’s Hierarchy of Needs

I’d wager that you have encountered the triangle diagram as shown below somewhere before. Some of you might have studied it during high school (can’t remember whether it’s included in the syllabus).

In 1943, Abraham Maslow proposed an idea in psychology named Maslow’s hierarchy of needs in his paper “A Theory of Human Motivation”. It is split into 5 tiers, starting from physiological needs (like food, water, warmth, rest) at the bottom, and topping it off with self-actualization. It gives us a good view of how we humans are motivated and progress in stages to fulfill those needs. In the 20th century, revisions are made to include other more important necessities:

Just kidding! There’s more to it…

Memes aside, the hierarchy of needs does show us the basics of human necessities.

How to separate between the Wants and Needs?

Although clearly, we need food, water, warmth (shelter), and rest to survive. However, those necessities themselves too can have different categories. There are tons of choices when it comes to food, the same goes for shelter and transportation. I have prepared a table below to show what I meant:

Category	Needs	Wants
Food	Healthy, nutritious	Tasty, exotic
Water	Clean and filtered	Sourced from natural springs etc
Shelter	Public housing	Mansion in a strategic location
Transportation	Public transportation or used car	Imported German luxury brands

In our current age of abundance, everything we could possibly need comes with the upgraded version/luxury side of it. We are spoilt for choice.

Everyone needs a handphone nowadays. You can, however, choose between the highest spec Apple phone (that costs around $1000+). or settle with a regular Android phone at less than half the price.

A Japanese-made car can bring you the same places a German car can. If the place that you reside comes with mature public transportation systems, you can even choose not to own a car.

There is NO one-size-fits-all approach here. It all depends on each individual’s circumstances, which brings us to…

Limit your Wants within your means

There is no wrong in wanting the better things in life. You want good stuff for your children, your family, and yourself, no harm in that. It all drills down to one of the foundations of personal finance – Live within your means.

Let’s say you’re earning a net of $5000 a month, and spend $2000 on rental and $1000 on car payments. Question: Does spending 60% of your monthly salary on these categories feel right to you? If yes, you probably need to relook into your budget priorities…

For some general guidance, we can follow the “50/30/20 budget rule” popularized by U.S. Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan“. Basically, it’s to divide your net salary (after deductions) into allocations as below:
50% goes to needs.
30% goes to wants.
20% goes to savings.

So looking back at the example given previously, spending 60% on just part of your needs doesn’t sound so smart now right? You have yet to consider other needs such as food, electricity, internet, etc. If you continued to spend without much considerations on the appropriate allocations, you might soon fall into debt just to survive. Treat your personal finances like running a business, always ensure that your cash flow is positive.

That said, it doesn’t mean that you can’t enjoy the finer things in life. As the heading says: live within your means – if you started to earn more, it’s ok for a little healthy bit of lifestyle creep. Just be sure not to fall into the Diderot effect. Moderation is key!

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This is post #7.

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