Types of spending: Sorting your budget into needs, wants & wishes

There's an old saying: Money is meant to be spent. After all, why else are you working if not to enjoy your money and make life better for the people you love? However, it's important to know how and why you spend money. Healthy spending habits should reflect what truly matters to you, now and in the future.

Let's take a closer look at the main categories of spending: needs, wants and wishes. These will look different for everyone. Understanding these three types of spending, and how you look at them with your priorities and values in mind, will help you choose how to spend—and save—wisely.

There are many ways to categorize and prioritize spending. The simplest approach, “needs vs. wants” asks you to decide which expenses are essential to your well-being and which are optional. Also considering “wishes” invites the opportunity to dream big for your future, which can be motivating and keep you on track when sticking to a budget feels challenging.

This area of spending includes the basic necessities:

• Housing. Your rent or mortgage payment as well as home maintenance costs—whatever it takes to keep a roof over your head. Housing costs also should include homeowners or renters insurance so you are covered in case of disaster.
• Utilities. Having a home is important, and you also need to keep the water running and the heat, air conditioning and lights on.
• Food. Everyone needs to eat.
• Clothing. Whether you shop at a thrift store or retail boutique, it's important to have comfortable, well-fitting, in-season clothes to wear.
• Health care. Depending on the kind of health insurance you have, you might need to pay for premiums, co-pays and deductibles as part of your overall out-of-pocket health care costs.
• Transportation. Whether you lease a car, own a car, or use public transportation, this is an essential category of spending to help you get to work, visit friends and family, and participate in everyday life.
• Childcare. Young children need adults to care for them, whether that care is provided by family or paid providers.
• Debt payments. Falling behind on loan payments, credit cards or other types of debt can affect your credit rating and limit your financial future. If you have debt, consider the minimum payment on those accounts a financial need.   

You might have some flexibility in spending on these needs. Some people can get by with a modest clothing budget by purchasing used clothes from thrift stores. People in mild climates might save money on utilities by skipping air conditioning. If you know how much you spend on your needs, you'll have a solid foundation for your monthly budget.

If you can cover your needs with room to spare in your budget, your spending might expand to include things you want but don't necessarily need:

• Take-out meals and restaurants. While food is a need, going out to eat is not. Cooking at home is usually far less expensive than dining at restaurants, but an occasional meal out can save time and bring joy.
• Gym memberships. Instead of exercising at home or outdoors, you might go to a dedicated place to focus on your physical fitness.
• Entertainment subscriptions. It can be fun and informative to read your favorite magazine every month, listen to podcasts and music ad-free, or watch shows and movies via an online streaming service. For a lower-cost alternative, check out your local public library; many libraries offer free or inexpensive digital media in addition to paper books and magazines.
• New (or new to you) car. If you're relying on public transportation or a hand-me-down car, you might be thinking about buying or leasing a car of your own. Owning a car gives you more flexibility than public transportation, but also includes costs such as auto insurance, maintenance and repairs.
• Hobbies and activities. Pursuing a passion can be deeply rewarding, but it usually comes with a cost. Churches and community centers often provide free or affordable activities such as book clubs, sports leagues, music groups, crafts and enrichment classes for adults and kids.
• Vacation. Traveling might not be a need, but having new experiences in new places is a meaningful and memorable part of life. Taking a low-cost trip, such as camping, might fill this want—or you might decide that a beach getaway is something you're willing to pay for.

The difference between needs and wants is about upgrading your lifestyle. It's possible to have a simple lifestyle on a budget that covers your needs and a few wants here and there, but if you want more features and frills, you'll need to spend a bit more.

If money was no concern, what might your lifestyle look like? It’s healthy to dream about what’s possible—even if it’s out of reach right now.

If your income increases, you inherit money, or you reach a big savings goal, you might be tempted to upgrade to a luxury lifestyle. Taking the time to think about the wishes that matter most to you will help you avoid lifestyle creep and spend your money in a meaningful way. Think of wishes as “icing on the cake” of life—not necessary, but enjoyable.

You can make room for wishes in your life by striking a balance and fulfilling other needs and wants of life more simply. For example, you might wish to take an international vacation every two or three years, so you save money by driving a used car you've owned for years rather than buying a new one. Or maybe you take on part-time gig work and put the money into a special savings account so you can splurge on expensive Christmas gifts for your family. Common wishes include:

• Luxury or sports car. Whether your dream car is a slick new EV, a high-performance sports car or a minivan that can carry your whole crew in comfort, many people have a new vehicle on their wish list.
• Larger house or vacation home. You might have your heart set on a better neighborhood, a more exciting city or a spacious house with a yard. Or you might dream of having a vacation home or cabin to create memories with your family and build generational wealth.
• Higher ticket travel. You might upgrade from wants to wishes by switching to a high-end resort or flying first-class. Or maybe there’s a big international trip that you’ve dreamed of, such as taking your family to visit cultural sites or exploring your ancestral homeland.
• Cleaning service. Hiring someone to clean your home can grant the wish of free time to focus on the activities and people you love—along with the pleasure of a cleaner living space.
• Personal trainer/nutrition coach. Going beyond a gym membership by hiring professionals might give you an extra boost to reach your fitness goals.
• Private education. Having your kids attend a private school can be worth the extra spending if it's important to your family. And paying for private tutors could help your kids achieve even more academically.

It's valuable to maintain a healthy blend of needs, wants and wishes in your life. Here are a few things to consider when incorporating each of these categories of spending into your financial planning:

Be mindful about your spending decisions, and make sure they're aligned with your values and priorities. As you look at spending on wants and wishes, ask yourself realistically what trade-offs you’re making. Buying yourself breakfast on the way to work every morning satisfies a short-term want, but it may slow down your ability to save for a long-term wish like going on a Caribbean cruise.

Make sure that all three categories are represented in your budget. Prioritize needs first, then wants and wishes. If you have to adjust your budget, it’s easier to downsize a want or delay a wish than it is to ignore a need.

It's important to treat yourself to a few wants that are important to you. If you feel deprived by extreme frugality, you might be more likely to splurge spontaneously in a way that does not align with your spending goals and overall financial planning.

To get more of what you want, look for ways to make your money go further. For example, say that you want to go out to eat every week. Instead of going to your favorite restaurant on Friday night, see if they offer weeknight specials or deals on take-out. If you order takeout, skip the delivery fees and go pick up the food yourself. Use loyalty programs or coupons, so that you can fulfill more of your wants and wishes.

Meaningful, well-planned purchases connected to your values will bring you more joy than impulse buys.

If you find yourself with a windfall such as an inheritance, bonus at work, or tax refund, don’t ignore your budgeting and prioritization. Pay yourself first and save for the future. Look at your list of needs and wants. Then, if you can, give yourself permission to grant one of your own wishes.

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Giving to churches and charities is a core value for many people. Your own values will guide you in determining where giving fits as a need, want and wish in your own life. For example, you may consider a small, recurring donation to your favorite organization a need or a want, with more ambitious philanthropic goals in the wish categories.

For the big picture, you'll want to coordinate your needs, wants and wishes with your long-term financial goals. Even if it feels far off, make sure you're saving enough for retirement. Find space in your budget for monthly contributions to savings along with other money goals, such as an emergency fund.

Long-term financial goals also can be divided into needs, wants and wishes. This way, you can regularly check in on them to see whether you're saving enough or you need to pull back on spending. In the end, it's OK to enjoy your wants and wishes so long as your needs are covered and you're investing in your future.

No matter where you are in your financial journey, you don’t have to go it alone.

Need help with day-to-day spending and saving? Thrivent’s Money Canvas offers free one-on-one money coaching to help you take control of your money.

Ready to invest in your long-term financial goals? Connect with a Thrivent financial advisor to get a financial plan aligned with your goals and values.