Identifying needs versus wants is really not as difficult as some might think. Most of us can cut down on spending in at least one area of our lives. The only problem we have is not knowing how to go about it or where to begin.
Simple steps towards reorganizing costs:
1. Household bills (rent/mortgage, utilities): Obviously these are to take priority over everything else. We can not live without them and we can not stop paying them. We can, however, sometimes reduce the payments by negotiating with suppliers or by changing suppliers.
2. Food, groceries and gas/travel costs: I’ve put these here because, although food is most important, it makes sense to put these together as we often need transport in order to a) get to work to earn the cash to pay for everything and b) to get to the stores in the first place!
Again, these are expenses which we can not cut out completely but we can reduce. This is the first place where we draw upon Wants versus Needs: do you really need that second bar of chocolate? Do you need to spend twice as much on a named brand as you could on a generic brand?
3. After we have sorted household bills, most of us will have debts to pay. These, of course, need to be paid but, again, we can negotiate if there are problems with the repayments or, if you are lucky enough to be able to do so, clearing off the debts quickly can leave extra cash for those things you want without necessarily worrying about whether you can afford the things you need.
4. Communications: I guess this could come under Household bills as a utility but I wanted to talk about it separately. Many of us have Internet, mobile telephones and home telephones. Are these needed? Of course, if you work from home then it is likely that they are needed. However, have you considered just how much use you really get from each one? Can you cut down on the use and, therefore, cut down on the costs? Do you find that you don’t really use you cell ‘phone and could do without it completely?
A quick summary here will give you an idea of how you should prioritize you needs:
Rent/Mortgage and other essential household bills ie. electricity and water
Food, groceries and transport
Other bills such as debts, Internet, etc.: Good practice is to pay off a little extra with each debt if you can and also to prioritize them into which will charge the most interest.
Once these are paid, we can now consider other things such as clothing. There are plenty of us who spend more on clothes than is really necessary. Of course we need them but do we need five new party dresses that we’re never going to where? Or that new shirt we really like when we already have a closet full of unworn shirts?
Uniforms for work, school, etc. are essential and should be included in a budget if they are needed but other clothes should come under “wants” and not “needs”.
In reality, much of what we spend besides household bills, debts and groceries is wasted. Paying off what we already owe should take priority over trying to put more unnecessary spending onto credit cards. If we pay them off and budget with what we actually have rather than with credit then it will not only be a benefit to our finances but also to our self esteem and, possibly even our health, knowing that everything is paid and we are spending extra money on wants knowing it is there to be used.