Understanding needs, wants, and desires

Managing money is about taking care of income and expenses. The expenses include various regular expenses, financial goals, investments, tax payments, and payments towards insurance premiums, among others.

The regular expenses or even some of the large lump sum expenses could be towards basic needs or towards wants or desires. While the three terms are often used interchangeably, they are not, and hence, it is important to understand the difference between them.


These are things that are essential for our survival and well-being. Food, a roof over the head, water, clothing, and healthcare are among some examples of needs. It is not possible to live without these, and hence the needs assume priority when one plans one’s spending budget.


Once the needs are met, we strive for things beyond those, for things that are not essential for our survival but enhance the quality of life. Entertainment, travel, and luxury items are some examples of wants. Ideally, one should plan for these items only after the basic needs are met.


The big difference between wants and desires could be in the form of affordability. There are a few items that we desire but may not have enough to fund their purchase. The driving force behind desires is often emotion.

As things may not be affordable, we may have to resort to borrowing, which often tends to be irresponsible borrowing (see the article Think before you borrow money).

Importance of understanding the difference

In the household budgeting exercise, it is critical to understand the difference between needs, wants, and desires. This helps prioritise the allocation of money first towards needs and then towards wants and desires.

If we spend too much money on our desires or wants without providing for our needs, life may become difficult. In fact, in pursuing our desires, if we resort to borrowing, the interest on borrowing would add to costs and can potentially lead one into a debt trap.

To summarise, needs are those things that are essential for our survival and well-being; wants enhance the quality of life but are not essential; and desires are things we crave but may not be able to afford.