When budgeting, it pays to be mindful of needs versus wants. Needs are things that you must have in order to survive - food, shelter, clothing, healthcare and transportation. Wants, on the other hand, are things that you would like to have, but you do not actually need in order to survive. Sometimes the line gets blurred between the two.

For example, you need a home - a roof over your head, a place to stay warm and dry. Your home, therefore, is a need. Often, however, people want to have a bigger home, or one with upgraded kitchen appliances, hardwood floors and a swimming pool. At this point, we've moved beyond a need and entered into want territory. If you are living beyond your means, you cannot justify this house as a basic need.

Cars are another example. You need a car to drive the kids to school, get to work and run errands. But do you need that big SUV that not only costs twice as much as another car that would have done the job just fine, but also costs more in gas? You need the car, you want the SUV. See the difference?

There are expenses that will be wants for one person and needs for another. You may want a high-speed Internet connection at home so you can check Facebook, watch videos or surf. Someone else may need that high-speed connection in order to work from home. The bottom line is this: it's important not to rationalize some expenses away by pretending they are needs when they are actually wants. Be honest with yourself and with your budget.

Next: The Complete Guide To Planning A Yearly Budget - Creating A Yearly Budget »

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