How Can You Distinguish Between Needs and Wants Using the 80/20 Rule?
There are some things that people need while there are others that they simply want. In order to ensure their sustenance from day-to-day, while also reaching their financial goals it is important for individuals to create and follow a budget that balances their needs with their wants. For this, it is important for people to first understand the difference between wants and needs. Being aware of the difference is the key to fitting both into the budget and still saving a decent sum for use during emergencies. Most importantly, it helps individuals manage their expenses effectively and minimize the need for them to avail short term loans.
Distinguishing Between Needs And Wants
Many people feel that the process of distinguishing between needs and wants is fairly straightforward. This is especially true when people consider these two aspects only in light of their below-given definitions.
Defining Needs
Needs are things that most individuals require to live and work in an efficient manner. These include things like shelter, food, clothes to wear, insurance, health care, and even gas and electricity bills. In terms of budget, they are categorized under recurring expenses and generally form a major part of the monthly expenditure for an individual.
Identifying Wants
Unlike needs, wants are things that ensure a more comfortable lifestyle for an individual. While it is possible for an individual to live without them, they can definitely help to enhance their overall enjoyment and comfort level. Wants generally include items such as travel, entertainment, outings with friends and family, and expenses on designer clothes and footwear, etc.
However, the above categorizations might not always prove to be the best way to differentiate needs from wants. This is because every individual’s perception of needs and wants may differ according to his/her financial and even social status. Thus a designer dress may be a want for people belonging to people to a low or middle financial background. However, the same dress may actually be the need for people, who constantly move in the upper echelons of society.
Budgeting For Both Needs And Wants Using 80/20 Rule
As mentioned before, distinguishing wants from needs can help individuals to gain better control over their expenses besides making them more self-aware about their spendings and savings. The key to creating a well-balanced budget that takes both these aspects into consideration is to figure out the best way to divide the income and prioritize expenses. In this context applying the 80/20 rule can prove extremely effective as it eliminates the need for individuals to argue with themselves about wants vs needs. In fact, it is one of the most common budgeting strategies being adopted by people to get more out of their money.
An Overview Of 80/20 Rule
The 80/20 rule is based on the simple principle that 20% of the expenses of individuals should account for 80% of their spendings. Put simply, the rule states that people should spend 20%of their total earnings on savings and repayment of any debts and use the remaining 80% as they deem fit. In addition to helping people avoid the exercise of expense-tracking, this budgeting formula also helps in ensuring that they save a decent sum regularly and minimize their dependence on fast loans online.
What Makes The 80/20 Rule Work
There are several reasons that ensure the success of the 80/20 method of budgeting. The most important of these are listed as follows.
It makes debt repayment a priority that helps in improving the financial credibility of individuals significantly.
It ensures compulsive saving which can enhance the financial stability of individuals and help them achieve their financial objectives in time.
It helps in enhancing the happiness and satisfaction level of the individual, as they effectively gain greater control over their finances.