Talk to a credit repair company, and the first question they’d ask you is how you create your monthly budget, which revolves around differentiating between your needs and wants. On the surface, it may seem easy, but when you start planning your budget, you realize there’s a thin, blurry line between your needs and wants.
Understanding the difference between both is important for efficient and effective credit restoration. Credit repair experts often see their clients mistake their wants as needs. That’s because they become habitual of these wants to an extent that they can’t imagine living without them.
A need, in simple words, is something required to live. A few key examples are food, shelter, clothing, and conveyance. So, your need-based budget includes money for groceries, pantry essentials, home payments (installments or rent), utility bills, access to conveyance, and basic medical supplies.
And for the unforeseen, there’s insurance.
Wants are an interesting topic to talk about. They are the things that improve our quality of life. You may need a car to commute, but the features you’d like in it are the things that you want, not what you may necessarily need.
Dining at restaurants, home décor, expensive shoes, or a wardrobe full of clothes all wants.
How to Identify Needs from Wants While Budgeting?
Budgeting is all about maintaining a balance between your needs and wants. Credit repair experts recommend you ask yourself the following questions while creating a budget:
1. Is it fulfilling my basic needs?
Food, shelter, clothing, and conveyance are your basic needs. But there is more to needs than that. If your work is online, you need a computer. The configuration of your computer will depend on your role.
You may either need a basic or a high-end computer for work.
The key lies in getting the bare essentials and not upgrading until necessary.
If your basic needs are met, and you want to spend a few dollars more because you can, you are fulfilling a want. Stick to the needs.
2. Will I be ok without it?
If a want is not fulfilled, it affects us on emotional levels. It can even have dire consequences on our well-being. So, whenever you find yourself at a crossroad where you can’t decide whether you should buy something or not, ask yourself:
Will it harm me if I don’t buy this?
If the answer is, ‘No, but it won’t hurt if I have it either,’ then, it’s a want and can be put on the backburner.
3. What will be the long-term consequences of the purchase?
Sometimes we shop because it makes us happy. But then, we question our decision out of remorse.
If this sounds familiar, remember it while planning your budget. Your purchase decisions have a long-term effect on your budget. Whenever you feel bad, you don’t always need retail therapy. On the contrary, you need to figure out, ‘How do I fix my credit.’
Build a Better Budget for a Better Credit
Credit restoration experts say that you don’t need to live like a hermit for optimum credit repair. It’s not difficult to shop within the scope of the needs. You just need to consider the following tips:
- Don’t use your credit card for shopping.
- Spending in cash makes you realize how much you are spending. So, shop in cash whenever possible.
- Shop when you are short on time.
- Print a picture of your goal on your credit card for a constant reminder of what you are saving for.
- Keep a prepaid (gift) card and recharge it with a certain amount only for shopping.
One of the most efficient ways for good budgeting is to follow the 50/30/20 budgeting rule. 50% of your income must be for needs, 30% for wants, and 20% for financial goals.
Most of us are impulsive shoppers and feel guilty about making the wrong purchase decisions. It doesn’t change the fact that credit repair requires changing the way we spend our money. The more we stick to our needs, the faster we can get close to our financial goals. Hopefully, the tips shared above will help you get started.
Budgeting is just one aspect of credit restoration. There are several other factors affecting your credit score. A credit repair company like Cool Credit can identify the negative items on your credit report and dispute them on your behalf.