How is a 'need' different from a 'want'?

The distinction between a 'need' and a 'want' is fundamentally rooted in their importance to survival and basic well-being. A 'need' encompasses items or services that are crucial for maintaining life, such as food, water, shelter, and healthcare. These are necessities that one must have to function and thrive. In contrast, a 'want' refers to desires for items or experiences that enhance quality of life but are not essential for survival. Examples of wants include luxury goods, entertainment, and non-essential services.

Understanding this difference helps individuals make informed financial choices and prioritize their spending on what is necessary versus what may add comfort or pleasure but isn't critical. This fundamental principle is essential in personal finance, as it guides budgeting, saving, and investment strategies towards fulfilling essential needs before addressing wants.