Although you now know how to separate your needs from your desires, what we have not yet mentioned is how these needs and desires are linked to money management. Every financial transaction is an option. An important financial skill that helps you make the best possible choices to manage your money in the best way is to separate your needs from your desires and prioritize them based on your income.
In the world of economics, needs and desires are treated in the exact same way as you understand them in your own life. A need is necessary for survival, while a desire is something you want to have in your possession without being necessary for your survival. This possiblysatisfies your aesthetics, improves the quality of your life, creates the conditions to belong to a group, etc.
Economics considers your “needs” and “wants” as possible expenses, so it puts you in a process of finding and managing money and resources. For example, water is an extremely important need. The management of this important resource has two parameters. One is that your family should make sure to pay their water bill. The other is that all its members should be trained in the proper management of water as a resource so that neither water nor money is wasted. How each family chooses to manage water has to do with its culture, financial comfort, water needs (depending on the number of its members), etc.
But how do we make the best financial choices? In other words, how will you be able to decide which of your needs or wants are worth meeting each time? Economists propose a method called a preference scale, which is nothing more than a list, that is, a list of your desires and needs. By making a record of them and trying to put them in order of importance month by month, you begin to shed light on which of them is important to fulfill. You start from the most necessary and move on to the least important until your money is exhausted or all your needs and desires are met, if you have enough money for them.
The above method, as we will see, is also one of the main stages of our budgeting.