Table of Contents
Introduction
Managing money in India has traditionally been about savings. That said, with the rise of the digital economy and easy access to credit, the traditional ‘savings’ mindset of Indian households is witnessing a change. We are currently going through a shift where lifestyle inflation i.e. the tendency to increase spending as income rises is gaining more importance than actual wealth creation.
To attain financial freedom, one must first understand that a “need” is something essential for survival and functionality. Some common examples are groceries, rent, and insurance. A “want” on the other hand, is a choice that improves your life, but not essential. Some relatable examples are dining at a premium cafe or upgrading to the latest high-end smartphone model every year. However there’s one technique to make sure that your hard-earned money builds a legacy rather than just being the source of finance for a temporary lifestyle. All you have to do is to apply a structured needs vs wants budgeting mindset.
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Needs vs. Wants
Needs and wants, in India, are generally influenced by cultural values and family structures.
What Constitutes a “Need”?
- Housing and Utilities: Rent or Housing Loan EMIs, electricity, water, and high-speed internet that is a must-have facility due to the work-from-home culture.
- Groceries and Nutrition: Basic provisions that are quite necessary for a healthy diet.
- Healthcare: Health insurance premiums, an unavoidable element due to rising medical inflation and regular medication.
- Education: Children’s school and college fees, which is often a top priority for Indian parents.
- Transportation: Fuel for your vehicle or monthly passes for public transport like bus and Metro.
- Debt Repayment: Minimum payments on existing loans must be considered as a need to protect your credit score.
What Constitutes a “Want”?
1: What is a stock?
- Dining Out and Delivery: Ordering via apps or eating out at high-end restaurants often.
- Entertainment: Subscriptions of multiple OTT platforms, movie tickets, and gaming.
- Lifestyle Upgrades: Buying “designer” labels when a standard brand is enough, or buying the latest gadget due to its social status.
- Luxury Travel: International vacations or premium staycations that offer more than basic rejuvenation.
Overspending Psychology
Why do we overspend even when we know better? In the present Indian market, three major factors lead to impulse purchases:
- Display Effect: The tendency to match the lifestyle of friends, colleagues, or influencers. Seeing a friend posting a photo of a latest luxury car on social media often triggers a “want” that poses as a “need.”
- Easy Credit (Buy Now, Pay Later): With BNPL schemes and instant personal loans, the “pain” of paying is delayed, making it easier to ignore the budget.
- Decision Fatigue: After a long day of work, the convenience of a “want” such as ordering food often wins over the effort of a “need” like cooking at home.
3 Top Rules of Budgeting
To maintain a healthy balance, financial experts recommend specific frameworks that simplify needs vs wants budgeting.
50/30/20 Rule
This is the most popular starting point for most salaried professionals:
- 50% for Needs: Half of your take-home pay should cover all essentials.
- 30% for Wants: This is your “fun money.” It covers hobbies, dining, and lifestyle choices.
- 20% for Savings and Investments: This goes into your PPF, Mutual Funds, or Emergency Fund.
60/20/20 Framework
If you are currently managing significant debt such as a home loan or car loan or facing high inflation, this modified version might be more practical:
- 60% for Necessities and Debt: Covers all bills plus EMI repayments.
- 20% for Discretionary Spending: A tighter limit on wants to ensure financial stability.
- 20% for Long-term Goals: Ensuring your future isn’t sacrificed for the present.
3 Tips To Identify “Hidden” Wants
“Wants” sometimes hide inside our “needs.” Let’s take the example of buying groceries. Even though groceries are a need, buying imported organic avocados is a want. Here are 3 tips to audit your spending:
- The 24-Hour Rule: In case of any non-essential purchase over ₹2,000, wait for 24 hours. By that time, the impulse generally dies down. Later you realize that you don’t actually need the item.
- Check the “Unit Cost”: Before you buy a luxury item, calculate how many hours of work it takes to pay for it. If a pair of shoes costs three days of your salary, ask yourself “is it worth the effort?”
- Audit Subscriptions: We generally pay for 4-5 OTT apps, but watch only one. Cancelling subscriptions that you don’t use is the easiest way to trim the “want” category.
4 Actionable Tips to Control Overspending
1. Automate Your Savings
The best way to control spending is to ensure the money isn’t there to be spent. Set up an automatic transfer to your SIP or a separate savings account on the day your salary is credited. This “pay yourself first” approach ensures your 20% savings goal is met before you even look at your “wants” list.
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Know more2. Use the “Envelope” Method (Digital or Physical)
Set aside a fixed amount for categories like dining or shopping. Once that digital wallet or cash envelope becomes empty, you cannot spend more for that category until the next month.
3. Track Every Rupee
With a simple mobile app or a notebook, record every expense. Don’t miss to track even if it is a ₹20 chai or even the ₹10 parking fee. Seeing these small amounts add up at the end of the month is a powerful eye opener.
4. Create an Emergency Fund
A major cause of overspending into debt is an unexpected “need” like a medical emergency or a car repair. Having 3–6 months of expenses in a liquid fund prevents you from swiping your credit card when life gets unpredictable.
How To Implement Needs vs Wants Budgeting in Your Life
Adopting needs vs wants budgeting isn’t about living a life of deprivation. It’s about intentionality. It means choosing to spend on things that truly bring value to your life while removing unnecessary things without any mercy.
This might mean opting for a modest wedding celebration to make a down payment for a house. Or choosing a reliable mid-range car instead of an expensive luxury model that drains your monthly income through high maintenance and insurance.
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Key Takeaways
- Awareness is Key: Start by listing all your expenses and divide them honestly into different categories.
- Prioritize Survival: Ensure your “needs” such as rent, food and insurance are covered first.
- Limit Discretionary Spend: Keep your “wants” within 30% of your income.
- Debt is a Need: Treating EMI repayments as a non-negotiable “need” helps maintain financial health.
- Systemize Savings: Automate your investments to get rid of the temptation to spend.
- Review Monthly: Your budget should be a living document that adjusts to your changing life stages.
Parting Words
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Know moreFrequently Asked Questions
Is an internet connection a need or a want?
In 2026, a basic internet connection is a need, especially for work, education, and banking. However, a premium, ultra-high-speed plan for 4K gaming or heavy streaming is often a want.
Should I stop spending on "wants" entirely to save faster?
No. Completely cutting out “wants” often leads to “frugality burnout,” causing you to eventually splurge impulsively. The goal of needs vs wants budgeting is balance, not total restriction.
Is buying a car a need or a want in India?
It depends on your location. If you live in a city with excellent public transport (like the Delhi Metro), a car might be a want. If you live in an area with poor connectivity or need it for elderly family members, it becomes a need.
How do I handle family pressure to spend on social events?
Communicate your financial goals clearly. You can participate in social events without overspending on expensive outfits or extravagant gifts. Focus on presence rather than “paisa” (money).
Is health insurance a need even if I am young and healthy?
Absolutely. Health insurance is a critical need. One hospital stay can wipe out years of savings, making it a foundation of any sound financial plan.
Does the 50/30/20 rule work for low-income earners?
If your income is low, your “needs” might consume 70-80% of your budget. In such cases, focus on minimizing “wants” as much as possible and try to save even 5% to build the habit of discipline.
How often should I review my needs and wants?
You should review your budget once a month. Life changes such as a salary hike, a new family member, or a change in rent will require you to re-calibrate your categories.
