In Singapore, with its high cost of living, distinguishing between needs and wants is crucial for financial well-being. Housing costs like HDB loans, CPF contributions, and long-term financial goals such as saving for a car COE, BTO, or retirement can often make it difficult to manage discretionary spending.

When you clearly understand your needs, you can make more informed decisions on what’s essential and what can be cut back.

To start, let’s define what your needs are. These are the essential expenses necessary for basic survival and functioning. These are typically non-negotiable costs, meaning skipping them can result in consequences like disruptions to your lifestyle or even penalties.

Missing any of these needs can have real repercussions, such as losing access to essential services. For example, not paying for health insurance could leave you unprotected against large medical expenses.

A common misconception is whether items like a smartphone or subscription services can be classified as needs. A phone could be considered a need if it’s used for work or communication, but it’s a want if it’s just for entertainment or a status symbol. The key question to ask: Is this expense essential, or can you live without it?

In the Singapore context, needs include:

• Housing

• Utilities

• Basic food

• Transport

• Insurance premiums

Wants are the expenses that enhance your lifestyle, but they’re not necessary for basic survival. While needs are non-negotiable, wants are those discretionary items that can bring joy or convenience but aren’t essential for your day-to-day life. In the Singapore context, wants are often associated with lifestyle upgrades, hobbies, and comforts that improve your quality of life but aren’t critical to your basic functioning.

Sometimes, the line between needs and wants can get blurry, especially when it comes to technology and convenience. A smartphone, for instance, could be viewed as a need if it’s used for work or communication. But if it’s only being used for entertainment or as a status symbol, then it’s clearly a want. Some wants can even masquerade as needs due to their convenience or the perceived value they bring, especially in our tech-centric society.

In Singapore, common wants include:

• GrabFood or Deliveroo over cooking at home.

• Monthly subscriptions like Spotify, Netflix, or YouTube Premium.

• Designer clothing or high-end cosmetic products.

• Regular indulgence in bubble tea or cafe drinks.

• Upgrading phones annually, even when your current one works fine.

Remember, some wants can masquerade as needs, especially when it comes to tech or convenience. The line can get blurry when gadgets or services provide perceived value that’s hard to let go of.

An important reminder: Even small, habitual spending on wants, such as a $6 coffee every day, can quickly add up. Over a month, that’s $180, which could have been spent elsewhere on more important financial priorities.

» MORE: 7 ways to track your monthly expenses

While managing your finances means ensuring your needs are covered, it’s equally important to balance both your needs and wants. This doesn’t mean eliminating wants entirely but being mindful of how much they impact your overall budget.

1. Create a list

Start by writing down all your monthly expenses. Use categories like rent, groceries, phone bills, subscriptions, shopping, dining out, etc. This will help you visualise where your money is going. You can use Google Sheets or apps like Seedly Budget Planner to organise everything.

It’s also a good idea to look at your past 3 months of bank or credit card statements to remind yourself of all your expenses. This can help jog your memory and give you a clearer picture of your spending habits.

2. Divide it up

Next, divide your expenses into needs and wants. Some items may fall into a grey area, like phone bills or having a second car. Consider the necessity and affordability—for instance, do you need that new phone every year, or can you wait another year before upgrading?

We recommend applying the "consequence test"—ask yourself: What happens if I cut this out? For example, if you cut your Spotify subscription, would you still be able to enjoy music?

3. Tally the numbers

Now, add up how much you’re spending on each category. Compare the total numbers with the 50/30/20 breakdown, where 50% should go to your needs, 30% should go to your wants, and 20% should go to savings or debt repayment.

So for example, if your spending on wants exceeds 30%, consider scaling back. This could mean switching from dine-in meals to hawker food or downgrading from Spotify Premium to the free version.

Managing both needs and wants in a balanced way isn’t just about cutting back—it’s about finding the right allocation to maintain a financially healthy lifestyle. By using the 50/30/20 rule and adjusting your habits, you’ll be well on your way to achieving both short-term comfort and long-term financial security.