Wants vs. needs: Differentiating between these two kinds of expenses
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Budgeting is an important part of getting better at managing your finances. A strict monthly budget can give you a clear idea of where each rupee that you earn is being spent. That said, to prepare an effective monthly budget, you need to know the differences between your wants and your needs.

Wants vs. needs: What are they?

A need is any financial expense that is absolutely essential for your survival and your life in general. Most of your basic living expenses fall in this category. Some examples of needs include the following expenses:

  • Your rent or home loan EMIs
  • Your monthly utility bills
  • Your monthly expenses for food and groceries
  • Medical bills
  • Transportation or commuting costs

These expenses, as you can see, are essential for your basic survival or for your job, which is again essential for your survival.

A want, on the other hand, is a discretionary financial expense. These are things you can live without, but choose to spend on anyway for different reasons. Some examples of wants include the following expenses:

  • The cost of travel
  • Dining out
  • Purchasing new clothing for special occasions
  • Entertainment expenses such as concert and movie tickets
  • Monthly OTT subscriptions
How to identify and differentiate between your needs and wants?

Before you learn how to accommodate your needs and wants into your budget, you need to be clear about how to identify these expenses. Here are some tips that can help you with this.

1. List out all your monthly expenses

The first step is to write down all your monthly expenses. It’s best to do this over the course of a month or two, so you get a really clear idea of where your money is actually going. However, if you want to fast-track the process, you can write down the main categories of expenses you typically spend on, like fuel, movie tickets, dining out, rent etc. Alternatively, you can also use an expense-tracking app for this purpose.

2. Label them as essential or discretionary

Once you have a clear view of everything you tend to spend on, you need to classify each expense as essential or discretionary. The essentials are the needs, and the discretionary costs are the wants. You can add a label beside each expense, colour-code it, or use your preferred budgeting app to group your spends into the two different categories.

3. Revisit your labels to identify wants masquerading as needs

You may have labelled some expenses as needs, but a closer look may show you that it’s actually a want instead. For example, your internet connection at home may appear to be a need at first glance. However, if you actually don’t use your home internet to work, but only for entertainment, it may be a discretionary expense instead. Similarly, your grocery bill may seem like a necessary expense, but if you look closely, it may include a lot of processed foods that you indulge in rather than need.

Needs vs. wants: How to budget for both these categories?

Once you’ve identified the needs and wants, you need to set aside a portion of your budget for each kind of expense. It’s hard to cut corners in case of essential expenses, so you have to ensure that your income is enough to cover your basic needs, at the very least. However, in the case of discretionary expenses, you can limit or eliminate many of them. This will leave you with adequate funds at the end of the month to save or invest for your future.

You can also rely on budgeting rules like the 50-30-20 rule, the 80-20 rule or the 70-20-10 rule. These benchmarks can help you save up while simultaneously meeting your discretionary and essential expenses with ease. The trick is not to fully eliminate all wants in favor of needs, but to strike the right balance between the two.


Differentiating between needs and wants is crucial when you are preparing your budget. It helps you prioritise your needs (i.e. essential expenses) over your wants (i.e. discretionary expenses). You will then be able to save more each month. This, in turn, can help you achieve your financial goals sooner.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.