Now that you know where your money goes, let's learn how to evaluate those expenses! Not all spending is created equal.
The key to smart spending is understanding the difference between needs and wants. This simple distinction will transform how you budget.
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What's one spending habit you're eager to improve?
Needs are expenses essential for your basic survival and functioning. Think food, shelter, transportation to work, and basic healthcare.
Without these things, you literally cannot maintain your life or livelihood safely and healthily.
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Can you think of three expenses that are definitely needs?
Wants are everything else - things that enhance your life but aren't essential for survival. Premium coffee, streaming services, dining out, and new clothes often fall here.
You can live without wants, even if you really enjoy them!
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What's one expense you love but could technically live without?
Why does this matter? Because needs should always be covered first in your budget. Wants come after you've secured your essentials.
When money gets tight, you cut wants before needs. This prioritization keeps you financially stable.
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Which would you cut first: your rent or your Netflix subscription?
Here's where it gets tricky: some expenses fall into gray areas. Is a gym membership a need or want?
It depends on your situation! If it's essential for your health, it might be a need. If it's just nice to have, it's a want.
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Can you think of another expense that might be hard to categorize?
Let's look at food as an example. Groceries for basic nutrition are a need. But expensive organic brands or frequent restaurant meals often become wants.
