Our society seems to confuse “wants” with “needs” all the time. Our family and friends, social group, and marketers for companies have done a fantastic job of tapping into our psychology and convincing us that we absolutely must have this or that to fulfill some gap in our psyche.

In the 1950s and 60s, psychologist Abraham Maslow proposed came up with a “hierarchy of needs” to describe our wants and needs. The 5 classifications identify our lowest basic needs that must be met for us to move onto the next.

1. Physiological needs - These needs are fundamental to our survival and include things like food, water, air, shelter, and sleep. We seek out these basic needs above all else. For instance, if we haven’t eaten or slept in days, those basic actions take priority over everything else we might do.
2. Safety needs - We need to feel that our lives are not in danger. Here we are concerned with things like staying safe from physical harm, sickness, and having enough money to live.
3. Belonging/love needs - This is our desire to feel loved by others. We want to fit in and belong to certain groups so we seek out companionship. If we can’t fulfill such needs, we experience loneliness, depression, and other mental health problems.
4. Esteem needs - We need to feel both that others respect us and that we respect ourselves.
5. Self-actualization needs - Here, we want to become better than we currently are so we seek ways of growing on a personal or spiritual level. These needs are about harnessing our talents and making the most of the opportunities they provide.

Penelope Tzougros provides an adapted framework for how we spend money in her book Wealthy Choices. Here, each of us might spend money on:

1. Fixed costs - our rent or mortgage, utilities, food, and clothing - things we have to pay in order to survive.
2. Additional costs - costs that we could live without but we are much better off paying, like medical coverage, phone service, transportation fees, etc
3. Wants - these are things like going out to dinner, buying coffee at Starbucks, internet access, cable tv and video on demand, a gym membership, pet care, etc
4. Luxuries - an upscale car, season tickets to sports games or theater shows, most electronic gadgets, exotic vacations, etc
5. Happy silliness - these might include dog toys, frivolous purchases, spending $$ to win a stuffed animal, or buying an I-love-you gift for your partner

The scale should be adapted to fit your lifestyle. For instance, personal development and ongoing education is extremely important to me, so I’d probably throw a category in between Wants and Luxuries that might include classes, audio cds, and book purchases. I’d also classify internet access as an “additional cost” rather than a “want” because of my business requirements. For others, maybe you’d focus on weekend escapes with your significant other or activities with your kids or caring for your elderly parents or a particular hobby you enjoy.

Regardless, the point is to create a framework by which you can classify the majority of your purchases so you know where each type sits in your wants-and-needs hierarchy and so you start to think about your financial decisions more consciously.