When it comes to managing your money, the first step isn’t building a spreadsheet, it’s building awareness.
Many of us jump straight into paying down credit cards or saving without ever stopping to look at how our money is actually being spent. That’s why understanding the difference between needs, wants, and obligations is a great starting point.
This simple method helps you make clearer financial decisions and start budgeting with purpose..
1. Needs: The Essentials That Keep You Stable
Your needs are the non-negotiables. These are expenses that keep your home, health, and daily life running smoothly
Examples of needs include:
- Rent or mortgage payments
- Utilities (electricity, gas, water, internet)
- Groceries and essential food
- Transportation to work or school
- Medical care and prescriptions
- Childcare required for you to work
💡 Quick check:
Ask yourself, “If I didn’t pay for this, would my ability to live, work, or stay healthy be affected?” If the answer is yes, it’s a need.
Even so, needs deserve review. For example, you may need Wi-Fi, but you might not need a premium cable package.
2. Wants: The Extras That Add Joy
Your wants are the things that make life worth living, but they’re not essential to your survival. They add comfort, convenience, or entertainment to your life. The goal isn’t to eliminate wants, but to spend on them intentionally.
Examples of wants include:
- Eating out or ordering takeout
- Streaming services and subscriptions
- Shopping for clothes or home décor
- Vacations or weekend getaways
- Coffee runs and self-care splurges
- Luxury workouts
💡 Quick check:
Ask, “Would my life fall apart without this, or just feel less fun?” If it’s the latter, it’s a want.
3. Obligations: The Responsibilities That Come With Life
Obligations are expenses tied to your commitments or responsibilities. They might not be basic survival needs, but they’re still important, often non-negotiable because of contracts, relationships, or responsibilities.
Examples of obligations include:
- Debt payments (credit cards, loans, etc.)
- Family support or child-related expenses
- Insurance premiums
- Professional dues or licenses
- Tuition, school, or activity fees
💡 Quick check:
Ask, “Is this an expense I have because of a commitment or agreement I made?” If yes, it’s likely an obligation.
Obligations can weigh heavy, especially if you feel like you can’t adjust them. These can be restructured, refinanced, or renegotiated over time.
How to Apply This in Real Life
- List every expense for the past month.
Include everything — bills, subscriptions, coffee runs, the works. - Label each one as N (Need), W (Want), or O (Obligation).
- Add up each category.
This gives you a clear visual of how your income is being used. - Reflect and rebalance.
If your Wants are too high or Obligations are taking over your flexibility, it may be time to shift your budget priorities.
Budgeting Backwards Tip
When you start your budget from your goals, not your bills, you’re budgeting backwards. You’re deciding what matters first, and then organizing your Needs, Wants, and Obligations to support that vision.
This mindset shift helps you move from reactive spending (just trying to keep up) to intentional planning (taking control of your money).
Remember: Awareness isn’t judgment, it’s power.
Ready to take the next step?
👉 Download my free Your Spending Priorities: Needs, Wants, and Obligations Worksheet identify your needs, wants, and obligations and start your Budgeting Backwards journey today.
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