Managing Expenses - Needs, Wants

When we saw the 50:30:20 rule, we said we will be spending 50% of our in-hand income for Needs. But it triggered a lot of questions in my head (typical Business Analyst..Bruuh) . What are these needs? How can you identify these needs? Do you really need 50% of your in-hand income for needs? How did we arrive at this? Can’t you cut down these? How can I cut down these needs? So I started searching (Yes..googling..that’s what searching means) and found a few points and want to share the same here so it can be a little helpful for you too.

Needs

Needs are living expenses. Things which are required for us to live and work. Most of them will be the recurring expenses which we have to pay monthly. You can not avoid payments for these and these will be essentials that would be difficult to live without. Most of the common needs will be 🏘️ Rent, 🍱 Food, 🚘 Transportation, 🔌 Utility bills and 💰 EMI payments etc. But these needs are not fixed. These will vary from individual to individual.

For me, the majority of my needs are spent on 🏠 Rent, 🚘 Transportation and 🥗 Food.

Wants

Wants are things which will help us live more comfortably or with a bit of luxury. We can still live and work without these. Most of the common wants 🎬 Entertainment, 🚋 Travel, 🍽️ Dining out, 🍻 Hanging out with friends (I know, sometimes this will be a NEED 😉)  etc..,

How to identify Needs and Wants?

There is no direct formula or method to identify what are needs and wants (May be there is an AI bot to identify this? I don’t know or at-least i have not come across or this might have given you a new idea to work on one). It’s very normal you get confused when we try to identify what are Wants and Needs. Most of the time, there will be an emotion behind an expense and it is difficult to distinguish what we want and what we actually need. Don’t let the emotion take control, try to spend more realistically (easier than done 😆)

One thing which helped me is, listing down these expenses. You can use expense tracker apps, excel or just note it down on a paper. Assign tags to these expenses as Needs and Wants. Re-look at the Needs and wants list. Do you really need those Needs? What are your wants? Why do you want those Wants? Wants aren’t always frivolous spending- but they are items that you could live without if you don’t buy them.

Do you really need 50% for Needs and 30% for wants?

There is no hard and fast rule that you need to spend 50% of in-hand income on Needs. As you list down your needs, you can identify where your money is actually spending. If you can manage your needs within 50%, that’s pretty good 👍🏼, you can use the remaining money in savings. If your needs are going above 50%, then look at the list once again, come out of the emotions and think if you really need these expenses, try to cut down these expenses.  Same thing goes for wants. IF you really want to save more, try to minimise your wants as much as possible.

How to stick with the budget?

Once we list down our needs and wants, tracking expenses on a daily basis is essential to keeping on track. If we don’t track, we won’t control spending. Again, note down the expenses. This will help in identifying our spending habits and unless you know where it is going wrong, how will you correct it. Following are few strategies/tools will help in sticking to our budget

• Don’t spend more than you have. Especially using the Credit Cards
• Don’t make big purchases immediately. Think over it for some time before you make this purchase
• Make a habit to note down expenses without fail
• Review your budget regularly
• Don’t go on a shopping spree. Make a list of things you want to buy before heading out for shopping
• No need to spend all the money budgeted. If your expense is coming within the budget save the remaining

These might help us in achieving our personal finance goals using 50:30:20 rule. But this is not an event which happens once in a year, we need to follow it regularly, daily to manage and have full control over our finances.

And before I end, one Important rule to save more is this: SAVINGS = INCOME - EXPENSE. First take out the savings part from your income and then spend on your needs and wants.

One of the best book i come across financial planning is RICH DAD POOR DAD by Robert Kiyosaki. It will teach you how you don’t need to make a lot of money to get rich, assets and liabilities, and explains to parents why schools won’t teach your kids what they need to know about personal finance.

Let you be the master of your Finance! Vijayeebhava..