Budgeting 101: Understanding Needs vs. Wants

Emma Lam
Last updated Mar 11, 2022

It’s never an easy task figuring out how to budget, especially when receiving our first paycheck. There are so many needs and wants to consider, just where do we start?

Most 20-somethings out there can probably relate to the problem of “how to start budgeting” as part of the adulting milestone. 

Suddenly, we are thrust into the world of personal finance, which is both a blessing and a curse: we no longer have to justify our expenses to our nagging parents, but we have to justify it to ourselves now. Yikes.

With a disposable income upon employment, it’s easy to get lost and muddled in distinguishing between necessities and luxuries. Categorising our expenses is a subjective experience that we might misjudge a ‘want’ and deem it as a ‘need’ instead.

If you find yourself agreeing with all these hurdles so far, allow us to break down budgeting into five steps.  

  1. Wants vs. Needs
  2. Create a budget sheet
  3. Mistaking wants for needs
  4. Savings
  5. Budgeting apps

1. Classifying wants vs. needs

First off, before budgeting, we need to understand the difference between needs and wants. 

Needs are non-negotiable or fixed expenses that are necessary for ensuring one’s survival and wellbeing. 

Conversely, wants are negotiable and variable expenses spent on non-necessities and luxuries.

Wants are determined by lifestyle, whereas needs determine one’s lifestyle. As a result, accounting for your needs should be a priority before even considering or trying to afford any wants.

2. Create a budget sheet

Once we clearly understand what constitutes needs and wants, it’s time to start categorising them accordingly. This is where a budget sheet comes in handy. Essentially, the budgeting worksheet will track and summarise two main components: income and expenses.

Comparing the cost of necessities against your income flow is crucial to ascertain what financial leeway you’ll be working with. 

The income tab in a budget sheet refers to all the sources of income — whether active or passive — flowing in every month. Tabulate all these values to obtain your total monthly income earned.

Meanwhile, the expenses tab in a budget sheet accounts for your monthly estimate and actual expense. This can be further deconstructed into necessary versus unnecessary expenses. For instance, your necessary expenses would include:

Necessities (Fixed expenses)
Category Monthly estimate Actual expense
Rent or mortgage    
Groceries and toiletries    
Utilities (e.g. petrol, electricity, water)Medical and healthcare bills (e.g. chronic illness medication, regular appointments, therapy)    
Insurance like health, car, home (if applicable)    
Commuting/public transport    
Phone bills    
Retirement fund    
Education or Loan repayment (if any)    
Miscellaneous (for other personal non-discretionary costs e.g. elderly care)    
Luxuries (Variable expenses)
Category Monthly estimate Actual expense
Entertainment    
Dining out    
Big-ticket purchases (e.g. car, house, properties)    
Electronics    
Monthly subscriptions and services    
TV or music streaming platforms    
Fashion apparel & grooming (e.g. clothes, shoes, accessories, hair dyeing)    

These are all just broad suggestions for what the qualifying categories should be. Feel free to tweak them according to your expenses and create subcategories where applicable. 

While the emphasis is on managing necessities, it is still important to strike a proper balance between needs and wants. After all, luxuries help to elevate your quality of life and make living more enjoyable; but of course, all to be done in due moderation.

To assist you in reaping the best rewards for your expenses, we highly recommend signing up for a cashback credit card that allows you to save some while spending. 

Many provide major rebates on utilities, groceries, transport, and petrol, which can easily contribute to the required monthly spending.

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3. Mistaking wants for needs

Things are all fine and dandy when distinguishing between needs and wants, but what happens when the boundary between the two becomes blurred?

Misconstruing certain wants for needs is a common pitfall that many people can be susceptible to. Normally, such trouble arises when we become accustomed to certain wants and start perceiving them as things or experiences that we cannot live without.

For example, take those who are heavily reliant on caffeine and require at least a cup of coffee every day. 

Coffee is technically not classified as a need because it’s not essential for survival. Yet once you’re overly dependent on caffeine, it becomes challenging to separate it from your daily routine. Hence, this is how a want might be mistaken as a need. Naturally, this grey area differs from person to person.  

To recognise and discern the difference more clearly, here are a few factors to consider: 

  • Lifestyle
  • Overlaps in expenses
  • What you choose within the expense category matters

To elaborate, some overlaps in expenses may encompass both wants and needs in a single category. Things like internet service is a common example. 

With work-from-home, having an internet connection is undoubtedly important. However, when you use the internet to start engaging in other miscellaneous online activities like watching videos or playing video games, that’s when the need transforms into a want.

From this scenario alone, it becomes evident that navigating the line between necessities and luxuries might be trickier than we think.

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4. Savings will be your lifeline

As the adage goes, “You should always save for a rainy day”. These words ring especially true given our pandemic circumstances for the past two years. Here are some neat tricks to encourage better saving habits.

50/30/20 rule

The 50/30/20 budgeting rule is a popular way to track your spending and build your savings

Originally ideated by Elizabeth Warren and her daughter in their book, All Your Worth: The Ultimate Lifetime Money Plan, this system acts as a rule of thumb for working-class families to focus on the bigger picture i.e. savings for retirement and unforeseen circumstances, while still fulfilling a decent quality of life.

  • 50% = necessities 
  • 30% = wants
  • 20% = savings and debt reduction

By assigning a concrete percentage to your expense components, it helps prevent overspending and/or incurring further debt. 

However, here are some possible problems under this budgeting system. 

  • Once again, potential grey areas might arise. As demonstrated by the examples previously, it might not be easy to split your expenditure into three distinct categories.
  • It may be difficult for lower-income individuals to manage, especially when they have financial dependents under them.
  • Savings alone is insufficient. Nowadays, our economic climate is worsening with high inflation and increasing taxes. It’s near impossible to rely on the low-interest rates afforded by our savings account to fund our retirement or property assets as early as we’d like to.

    Across mature and non-mature HDBs in 2021, their price tags could cost anywhere from S$90,000 to S$725,000, which is an extensive and hefty price range.

    Thus, it’s not a surprise that many in the younger generation have turned to investments as a form of passive, supplementary income. 

Apart from the 50/30/20 split, there are other variations available too. 

Variation Pros Cons
70/20/10 rule:
  • 20% for paying off debt
  • 10% for savings
  • 70% for spending
Good strategy for those needing to clear debt, sometimes taking precedence over select necessities Less money for saving, requires other methods to accumulate wealth, i.e. passive investments
80/20 rule
  • 20% for savings
  • 80% for spending
More flexibility in expenditure Less control or restriction on expenses may lead to dangerous/uncontrolled spending habits

Kakeibo 

Kakeibo refers to the Japanese budgeting method which translates to “household account book”. The term was coined by Hani Mokoto, the first female journalist in Japan in the early 20th century.

She encouraged creating schedules and systems revolving around household tasks and promoted the concept of homemakers as the head of household finances and savings. 

As a result, she was a strong advocate for tracking finances in an account book/ledger.

Under this savings principle, there are four major premises:

  • How much money is available?
  • How much money do you want to save?
  • How much money can be reserved fr spending?
  • What improvements can be made to the budget?

Using introspective questioning help users establish clear guidelines and realign their goals according to their wishes. This empowered people to transform their bad financial habits into good ones.

So how do you build a Kakeibo book?

Step 1: Perform annual reviews on expenses, i.e. vacation, car insurance

Step 2: Have a monthly spending plan to calculate the monthly flow of money 

Step 3: Weekly spending tracking. Tackle each week’s expenditure (micro-scale) to form the bigger monthly picture (macro-scale). Take the available monthly sum and evenly distribute it across the weeks (budget). Be sure to track your actual weekly spending as it goes. 

Step 4: Reflect monthly. Was savings goal met? How can finances be managed more efficiently? Can spending be cut back in certain categories? 

These steps are nothing that we haven’t already established in terms of reviewing budget, tracking savings and expenditure and practising the needs versus wants mindset.

However, this method falls short because it’s a manual form of expense tracking. Hence, it might not be the most efficient and even tedious for some.

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Reverse Tracking

Instead of tracking your expenditure then determining a budget, set a budget first to limit and control your spending accordingly. For instance, if you decide that dinner should fall under S$10, be sure to bring around S$12 to S$13 to cover the entire cost (accounting for GST and service charges).

Again, remember to use a spreadsheet to keep a monthly record. In time, this will help to inculcate better spending and saving habits. 

Overall, this is a meaningful method for those with a penchant to overspend. 

Targeted Tracking

Target tracking involves tracking two of the highest expenses monthly e.g. food and hobby. Once you can pinpoint the amount spent every month on these two, it gives you the liberty to start lowering the overall expenditure little by little till the amount falls by 10%.

For example, if you spend around S$60 every month on dance classes, opt for dance packages or credits to make your dancing more value-for-money.

5. Budgeting apps are your friend

To say that automation makes the budgeting process remarkably easier is an understatement. Especially with contactless transactions, it’s harder to count the physical dollars and cents manually. 

Budgeting apps have taken the personal finance world by storm. There are currently multiple budgeting apps available on the market: it’s more of which app best caters to your needs and lifestyle.


Source: Planner Bee

Planner Bee is a free, #madebylocals budgeting app launched in July 2020. Its key selling point is its partnerships with over 40 banks (like DBS, OCBC, UOB, Citibank) and financial institutions in six Asian countries. 

This makes digitally tallying expenses convenient and seamless, particularly for those with multiple bank accounts. 

Expenses are also auto-categorised for monthly budget and balance check overviews across categories. Rest assured, your personal data and details are all safeguarded using the 2048-bit RSA encryption. It’s no wonder it’s ranked Singapore’s #1 Personal Finance App.


Source: BudgetBakers

Another good, free alternative to consider would be Wallet by BudgetBakers. For better clarity, cash flow is depicted in sleek, colour-coded graphs and charts. The intuitiveness of the app comes in its ability to project a potential budget outlook for users based on their predicted spending. Isn’t fintech great? 

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Mindfulness & structure in finance

All in all, being self-aware of your spending habits is the first step to implementing mindfulness and structuring your personal finance; because without identifying the issue or pain point, you can’t resolve it. 

Moreover, before cutting out on cost, it’s essential to be realistic about the bigger picture. For the vast majority, our living circumstances are relatively fortunate. We don’t have to worry about living from paycheck to paycheck daily. We can afford to treat ourselves with ‘luxuries’ like going out, celebrating, going on vacation and spending money with friends and family.

Everyone’s financial journey is different. Don’t ever let your age make you feel like you’re at a disadvantage. Whether you have a longer or shorter time horizon, it’s never too late to start.


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By Emma Lam
With a minor problem of ‘itchy fingers’ for flash deals and sales, Emma is on a lifelong journey to understand what being financially independent in adulthood means. That said, her inner child is still very much alive… with animals and gaming being her weaknesses.


Emma Lam March 11, 2022 85467