A need is a lack or a demand that must be fulfilled in order for something else to exist or for a desired state of being to be realized: The crops needed water. A need may also refer to a feeling or an emotional state: I was in need of affection. Needs are a common topic of discussion in the fields of philosophy, biology, psychology, social science and economics.
Needs are a fundamental part of the motivational theory developed by Abraham Maslow, who proposed a hierarchy of needs that range from physiological or deficiency needs such as food and shelter through to esteem and self-actualization needs. The theory suggests that people tend to devote most of their time and energy toward satisfying these basic needs before higher level desires become meaningful.
The term need can also be used to refer to a specific quantity or amount of something that is required: There is a need for more police on the streets. Need can be contrasted with want, which describes a desire or an aspiration: I wanted to buy a new car.
In finance, the concept of need is related to the idea of a student’s financial need. Students are considered to have financial need if they receive a low enough amount of grants and scholarships that they would not be able to afford an expensive private school without taking out loans. Schools that meet 100% of their students’ need do not provide any loans as part of their financial aid package, while those that leave a portion of their need unmet are more likely to offer loan assistance.
For individuals, it is important to distinguish between needs and wants when creating a budget plan. This can be challenging because many items can fit into both categories. Assigning dollar amounts to each category and separating them is an essential step in the budgeting process.
To determine whether something is a need or a want, consider how the item will benefit your life. For example, does the item fulfill a psychological or emotional need? Is it necessary for your survival? Is it an integral part of your culture or tradition?
Another way to differentiate needs from wants is to ask yourself what you’d be willing to sacrifice in order to obtain the item. For example, if you’re looking to purchase a new TV, ask yourself what other things you might be willing to cut or sacrifice in order to buy it. If you are unable to identify any sacrifices that will allow you to buy the new television, then it’s probably a want rather than a need. By being able to separate wants from needs, you will be able to create a monthly budget that includes a fixed amount for your needs and an allowance for your wants. Creating this budget will help you take control of your spending habits and avoid overspending. If you are interested in learning more about the distinction between needs and wants, read our article on creating a monthly budget.