Needs vs Wants
BudgetingGlossary term
Definition
A fundamental budgeting concept distinguishing between essential expenses required for survival and well-being (needs) and non-essential expenses for comfort or enjoyment (wants). The 50/30/20 rule suggests allocating 50% to needs, 30% to wants, and 20% to savings.
Related terms
- Fixed ExpensesRecurring costs that remain the same amount each month, such as rent, mortgage payments, car payments, and insurance premiums. Because they are predictable, fixed expenses are the easiest part of a budget to plan for.
- Discretionary SpendingNon-essential expenses you choose to make, such as dining out, entertainment, subscriptions, and hobbies. This is the most flexible part of a budget and usually the first area to cut when trying to save more or reduce expenses.
- BudgetA financial plan that outlines expected income and expenses over a specific period. Creating and following a budget is essential for managing money and achieving financial goals.
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