Distinguishing between Wants and Needs
I'm not sure if this is the right sub-forum for this post but:
Do any of you distinguish between Wants and Needs in your budget? I've seen some budgets where instead of Weekly Spends/Monthly Bills/True Expenses they do Needs and Wants. How do you pick what goes where?
Some stuff is easy.
Groceries, Rent - Need.
Netflix, Takeout - Want.
But some stuff...
For example, I'd argue that having a laptop is a "Need" in today's society. A nice laptop is a Want. One that can play AAA games and has 80,000 RAM and the glowing keyboard and whatever - sure, that's a Want. But a budget laptop, for word documents and keeping in contact with people and watching the news (and running YNAB)? I'd argue that was a Need.
Same for a mobile phone. A smartphone, the latest Iphone with X-finity pixel camera - again, that's a Want. But a second hand phone to keep you in contact with others? I'd say that was a Need.
So how do you classify those categories?
I think this is subjective. For my business I actually have certain needs - my cell phone is vital because I largely run my business off my cell phone, so it needs to be really reliable, with strong battery life. SO lately I've ended up upgrading more often than I'd like to make sure that I can maintain my connectivity. The same is largely true about a laptop, it's got to function fast so I can work efficiently. I don't game, so that doesn't matter, and I'm not really tempted by most shiny things, so I only need it to be 'latest and greatest' enough to do what I need it to do. This is also, of course, why these expenses are kept in my business budget because they're business expenses!
(side note I actually had a conversation with a friend recently that my phone is more important than my wallet. I can not run my schedule out of my wallet, and I can cancel everything that's in my wallet with my phone, and even make payments from my phone.... so in an emergency, I'm making sure I have my phone before my wallet!)
So, yeah, this is whatever you want to make it. Maybe daily coffee is a need, and not a want, depending on your job and lifestyle. Who knows, I don't think there is any sort of formula that works for everyone. Heck, even a car could be a want for some people, and not a need. For me, it's an absolute necessity (again, for my business).
I consider things on a spectrum, rather than 2 priorities (need vs want). All categories have a relative priority, and being very specific about the category names facilitates this.
When I'm looking to make a purchase on a category for which there are insufficient funds Available, I take from the lowest priority category in the entire budget (with funds). If I can't identify a lower priority category, I skip the purchase. After doing this a bit, money naturally aligns with the more important things.
I think there are two compatible philosophies to this. dakinemaui nails one, which is figuring out priority for category transfers. The other is your emergency situation. In the short term, if you lost all income and had to cut back all spending to he essentials, what would you keep? This is necessarily a hard approach, because it means cutting out essential lifestyle spend (like coffee) because those things, while important to you, aren't material to *keeping the lights on* so to speak.
I find this a helpful way to group categories because I can see what my true *maintenance* spend is each month vs choice spending that, while it may be very valuable to me, isn't truly essential.
In the medium term, if a crisis is ongoing or even a *new normal* (or the current normal, as can be the case for many trying to wrangle their budgets), you can further evaluate essential categories to reduce spending or take action to alter your lifestyle, such as moving to a cheaper apartment. The key is, you can cut spending in an essential category, but removing that category permanently would have serious implications for your life. Anything you can cut and just be inconvenienced isn't essential. And remember you can reevaluate what you consider essential mid- crisis.
I have a monthly Essential category and an Optional monthly category. In the Essential category are things that have to be funded first like rent, utilities, car, cell phone, insurance. The optional categories include things that I like but could live without, like streaming services, hobby money, eating out, etc. I have my budget arranged so that the highest priority items are at the top and then filter down to lower priorities. So when I budget for the new month, I just have to go down the list until TBB is zero. I'm able to budget the entire month at once as I have a buffer containing the current month's income that will be used to fund the following month. When budgeting, I just start at the top and go down the list, filling the Essential categories first, and then as I get closer to the bottom of the list, I have to make some decisions as to which categories I'm going to add to that month. Not every category gets money every month - I guess if I had enough money for all that, I wouldn't need YNAB as much as I do!
My priorities have changed over time and things that I previously had listed as essential are now optional, and vice versa. That's one of things I like about YNAB: the ability to change your priorities without messing up your spending and budget. Ultimately, though, the essentials and optionals are really a personal choice and quite subjective.
In my view, those are not separate things. My cost of living right now is what it is. It could be less if I do something differently. Cut out liquor. Cut out organic. Sell the car I financed and buy something outright. Stop using the air conditioner in the summer. Set the heat at 60 in the winter and wear lots of sweaters. (Actually we already do that one!) Even my particular house can be considered elective, because I can certainly "get by" with something cheaper.
Everything can be changed, and obviously some more easily than others. The distinction between "needs" and "wants" -- while very common -- is an artificial distinction to me. I prefer to simply go by "how badly do I want it".
A given debt has a monthly price (both principal reduction and interest) which is merely something I balance against all other priorities. Is having <whatever> now (i.e., before I can save enough to pay cash for it) more important than categories W, X, Y, and Z? Maybe just Y and Z? By inserting debt into the priority list, I can immediately see what I have to give up or delay in order to "afford" that <whatever> bought with debt. Hint, it's the stuff at the lower end of the priority scale that doesn't get funded because my income will only take me so far down the list.
The very notion of "afford" is defined by priority, because it would be silly of me to buy something not very important to me while doing without something that is more important to me. Simply put: If there's enough money left over after accounting for more important things, then I can afford that <whatever>. If not, then I cannot afford it.
The only hard part to all of this is understanding the relative priorities between categories to know where to "insert" some new (or increased) expense. Two buckets (needs & wants) simply isn't granular enough in my view.
TLDR: drawing a line somewhere to divide the priority list into need/want buckets -- sub-lists, if you will -- does nothing for me. I think that's all I'm trying to say.
Two buckets (needs & wants) simply isn't granular enough in my view.
"Needs" and "Wants" sounds like a (misguided) attempt to reduce all expenses to just two priority values: "high" and "low."
That may be a reasonable starting point, but in practice, you're going to need to break that down a lot more. You probably don't regard all your "high" priority expenses as being equal to each other -- within that group, there's probably some very high priority ones, and others that are not-quite-as-high.
The whole game here -- the entire point of using YNAB -- is to constantly self-reflect and ensure that your budget (and spending) is aligned with your ever-changing priorities.
I agree with the idea that priorities lie on a spectrum, and that spectrum is ever-changing depending on your current circumstances. Nothing like a pandemic to turn all of those priorities on their heads! Last year a webcam was probably a "want" for most people. This year, with so much of the workforce being remote? That has probably now shifted into a "need." Conversely, proper business attire might have been a higher priority last year than it is this year for a lot of people. I really like the idea of using different colored emoji to indicate priority! That's something I might incorporate into my own budget categories.
Violet Rain said:
I agree with the idea that priorities lie on a spectrum, and that spectrum is ever-changing depending on your current circumstances.
I agree that external factors (pandemics!!!) can certainly force a change in priorities.
But what I really appreciate about YNAB is that, more often, it's an inward act of self-reflection that produces a change in priorities.
Sometimes that's as simple as changing my mind about a purchase -- I may no longer want something, or am satisfied with something less expensive than I originally thought I'd want. But a lot of the time, it's a more subtle process of re-balancing and refining my goals and deeply held values. How I spend my money is in many ways an expression of how I want to live my life.
In that sense, it doesn't even feel like a "change in priorities" -- instead, it's a process of self-discovery and figuring out what my priorities (values) really are. I see budgeting as a form of self-improvement; it's time very well spent.
the stuff at the lower end of the priority scale that doesn't get funded because my income will only take me so far
Yes, and the cool thing about priority-setting and self-reflection is that, in my experience, the stuff that doesn't make the cut doesn't bother me anymore. I've discovered those things simply aren't my priorities. It's actually very liberating!
I was recently re-figuring my categories as I wanted something along the lines of wants-needs but found the division to two not practical for me. What I ended up was dividing things into three (the names are approximate translations as my budget is in other language):
- Essential - all the things I absolutely can't live without like money for housing, electric, food, etc.
- Important - all things that are not essential if things get really tight but I personally prioritize as important in my life. For me these are things like clothing, YNAB, hairdresser, money for a specific hobby, charity, etc.
- Nice to have - all the things that are first to go if things get tight like eating out/take away, Netflix, magazines, home decor, etc.
So far I find this three tier system to fit my needs for prioritizing. I don't want to do super specific prioritizing with everything in my budget but I do want my budget to remind me about my priorities when I'm assigning jobs for my TBB money.
I've mentioned that I don't feel wants/needs are useful groupings, so what do I think is useful?
If you're not budgeting in month-sized chunks, "temporal" groups can be useful to make the budgeting process easier. For instance, Monthly Expenses (will spend to $0 each month, leftovers can be reallocated; for example, Rent or Groceries), Known True Expenses (known amounts and timelines that need to carryover; for example, annual auto insurance), and Unknown True Expenses (unknown amounts or open-ended timelines with carryover; for example Auto Repair).
Another useful grouping when not budgeting in month-sized chunks is Check 1, Check 2. Makes it easy to allocate that money with goals after selecting the group.
When using month-sized chunks, you no longer need help with the "when" aspect of budgeting. I find functional groups are then useful. Housing (Mortgage, Utilities, Lawn, Furnishings), Living (Groceries, Restaurants, Hobbies, Fitness, etc.). This makes for interesting reports to see how much of your money goes toward various aspects of your life. A search will pull up some good threads on category groups.
I find it so hard to set priorities for some of these things, especially that blurred line between things like the "essential" groceries, and all those which I am splurging to excess.
Or there's a fair amount of "self improvement" stuff, for lack of a better word, that I can't quantify as a need, but some can be a high priority, even if it's not tangietially related to any true self improvement goal. (E.g, I went on a course to make a knife some time ago, I didn't need to, but I counted that as 'dabbling in a new skill', which is maybe more valuable than the act of getting a knife is, if that makes sense).
So to help prioritise I [try to] do two things for all the Wants of Varying Priorities. 1 is the Wish Farm - if it sits long enough in there and I never fund it, that tells me something.
Number 2 is separate categories for the things that could go to excess if I don't keep 'em in check. Coffee is a very big Want, but I can easily go to two nices cafes a day if I let myself. So keeping this separate to a generic eating out fund is important.