Needs, wants and priorities: the foundation of every budget

Every budget, however simple, answers one question: what should my money do first? Before you write down a single number, it helps to know the difference between needs, wants and goals. This guide shows you how to sort your spending and make choices you feel comfortable with.

• Needs are what you must pay for to live safely, stay healthy and keep studying or working: rent, basic food, transport to class, essential phone data, required course materials.
• Wants make life more enjoyable or convenient, but you could manage without them for a while: eating out, a newer phone, branded clothes, subscriptions.
• Goals are what you are saving towards for your future: an emergency fund, a laptop, application costs, a deposit for accommodation.

The same item can move between groups. Internet access is a need if your course is online; a faster, more expensive package may be a want. A phone is a need; the latest model usually is not.

When money is short, needs must be protected first. If wants take the money first, you may run out before rent or food is paid. Goals matter too: they are how you move forward, not just get by.

A useful order is:

1. Needs first.
2. Then goals, even with a small amount.
3. Then wants, from what is left.

This is a starting point, not a rule. Many people plan a small amount for wants on purpose, because a budget with no enjoyment in it is hard to keep.

Your priorities are personal. For many Somali students and young professionals, they include responsibilities that general budgeting advice often ignores:

• Supporting family, at home or abroad.
• Religious giving, such as zakat and sadaqah.
• Community commitments, such as contributions to weddings, funerals or a savings group (hagbad).

These are not wants to feel guilty about. Treat them as planned priorities, a fourth group called giving and family. Decide what you can give regularly and write it into your plan, rather than paying unexpectedly and running short later.

Look back at last month. Use your mobile money history, bank statement, receipts or memory. Put every payment into one of four groups: need, want, goal, or giving and family.

Here is how one imaginary first-year student's month might look once sorted.

In this example, needs took $250 of $360. Wants took $60, giving and family $40, and goals only $10. Seeing it laid out, the student decided to move $20 a month from eating out into savings.

Sorting is not about cutting everything you enjoy. It is about choosing on purpose. Ask yourself:

• Which wants matter most to me? Keep those and cut the rest.
• Is there a cheaper way to meet this need? Cooking more, sharing transport or a smaller data bundle might work.
• Which goal would I reach sooner if I moved a small amount each month?

Small changes add up. Moving $20 a month into savings becomes $240 over a year.

Some spending feels necessary because of pressure from friends, social media or advertising. Before you call something a need, ask: "What would happen if I waited a month?" If the honest answer is "not much", it is probably a want.

Ask these questions about each payment, in order.

• Would my health, safety, housing or studies suffer without it? Need.
• Is it a planned obligation or commitment, such as zakat, family support or a group contribution? Giving and family.
• Am I setting it aside for something specific in the future? Goal.
• Could I wait a month, or choose a cheaper version? Want, or a need with a cheaper option.