Needs vs Wants
What’s the difference, and how do you save for both?
Budgeting can feel restrictive - especially if you're closely tracking your spending across various categories. But if your budget feels like it’s limiting your freedom of choice, there’s a simpler approach worth trying: proportional budgeting.
This method divides your monthly income into clear “buckets” based on percentage.
A portion goes to your needs - the things you can’t live without.
Another portion is set aside for wants - the things you enjoy but could do without.
And the final portion goes to savings and debt repayment - to help secure your future.
Understanding the 50-30-20 Rule of Thumb
Popularized by Harvard economist Elizabeth Warren, this budgeting model recommends:
50% - Needs
Limit your needs to 50% of your after-tax income. These include essentials like groceries, housing, transport, and utilities. If your "needs" are taking up more than half your income, consider reviewing where you can cut back or optimize.
30% – Wants
Spend no more than 30% on wants - things like entertainment subscriptions, eating out, gym memberships, internet packages, new clothes, and yes, even those fancy dinners. These are things you like having, but could live without.
20% - Savings & Debt Repayment
At least 20% should go towards your savings goals and repaying debt.
This includes building an emergency fund, saving for retirement, or paying off credit cards and loans. Note: Minimum debt repayments count as needs; anything extra counts as part of this savings bucket.
Is It a Need or a Want?
It sounds simple, but real-life choices often blur the lines.
You need food - but do you need chocolate chip cookies?
You need clothes - but how many pairs of jeans is enough?
Spending on premium items like gourmet bread or high-end phones is not inherently wrong. The key is acknowledging they’re wants, not needs - and ensuring they fall within your 30% budget limit.
Your Brain vs Your Heart
Even ancient philosophers believed the heart ruled our emotions. The phrase “the heart wants what it wants” still rings true today - especially when your emotions override your budget logic.
Understanding the difference between needs and wants helps you take back control. If you're choosing to spend on a want, you can also choose not to.
Prefer Something Simpler? Try the 80-20 Rule
If tracking 50-30-20 feels too complicated, the 80-20 Rule might work for you:
Set aside at least 20% of your income for savings and debt repayment.
Spend the rest—the 80%—however you like.
This way, you always pay yourself first. And if you find success with 80-20, try 70-30. Eventually, you'll discover that budgeting isn’t about restriction - it’s about alignment: aligning your spending with your values.
Need Expert Help?
If you're feeling stuck or need financial guidance, our friendly advisers are just a call or meeting away. Whether in-person or over the phone - they’re here to help you take control of your finances. Email us on foundation@oldmutual.co.ke.
