Create a spending plan for your needs and wants

Spending on needs and wants may require you to keep a balance between enjoying the present, while keeping your future in mind. A spending plan can help you achieve this balance and reduce stress in the bargain.

Though there’s no limit to the number of ways you can earn passive income, let’s start by talking about three relatively straightforward approaches:

What’s the difference?

To be able to save better can come down to understanding the difference between needs and wants. On the surface, this might seem easy. Needs are things like food, rent, and clothing; while wants are things that you enjoy but don’t necessarily need to live.

Separating the two categories is a bit more complicated than it seems though. For instance, clothing is a need for everyone, but that doesn’t mean an expensive pair of shoes is necessary. The same goes for rent. You absolutely need a place to live, but you may want to live in a big, 5-bedroom flat with a terrace (when you don’t really need that much space).

Write a list of your needs and wants. The next time you want to spend money on something and aren’t sure what to do, refer to your list. Here’s an example of a list of needs and wants:

Needs Wants 
Rent Luxury clothing
Electricity (Other utilities) Video games
Food Restaurant meals
Clothing  Travel

Remember that your list should include all things you spend money on, that way you can look back at your list any time you are not sure whether to spend money.

Create your plan

A spending plan for needs and wants may look a lot like your budget. Both involve looking at how much money you’re making each month and how much you’re spending. The difference is that your spending plan will break down the money you spend on needs and wants.

Use your list to separate out the two categories and start adding what you spend on each. This will show exactly how much money you’re spending in certain areas, and you can decide if there are ways you could cut back your spending that would be helpful.

A healthy balance

Only spending money on needs might make you feel like you can’t enjoy life. It’s important to also set some money aside to spend on wants that make you happy. This will help you have a good spending balance. Some experts recommend the 50/30/20 rule, where 50% of your money is spent on needs, 30% on wants, and 20% kept for saving.

Think of spending on your needs and wants as having a balanced diet. You may eat certain foods because they’re a good source of nutrition and good for your health, but you may also eat fast food at times, may not be nutritious but it may taste good! Basically, a healthy balance means enjoying today while still saving for the future.

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