One of the fundamental principles of savvy finances is understanding the difference between needs and wants. Part of this understanding is acknowledging that much of what we have are actually luxuries and not needs at all.

Unfortunately, it’s all too easy to let luxuries become needs. We think that something is required for us to be happy or successful, when, in reality, it is a luxury that we could do very well without.

Is That REALLY a Need?

Most of us can’t get by without some sort of phone. The phone is a link to the outside world. It allows loved ones to contact us, and it can be useful when you are in an emergency situation. However, the truth is that you probably don’t need a fancy phone.

I’m going through this right now with my smartphone. For years, I was just fine with a cheap prepaid cell phone. It got the job done, since the only person who really texts or calls me is my husband. Just about everyone else pings me on Skype or sends me an email.

Last year, though, my husband and I got iPhones. We love our smartphones. We can surf the Internet, check our email, send each other images, and text with much greater ease. Sometimes, I even say I *need* my iPhone. The reality, of course, is that paying the monthly charges — not to mention buying the phone in the first place — is somewhat expensive. It’s certainly more expensive than sticking with the cheap prepaid cell phone.

But this phone has already insinuated itself into my everyday routine. I feel like I *must* have it. Taking a step back, though, reminds me that it’s really a luxury. I managed just fine for years without it, and could manage just fine again. We can afford our smartphones, but if something has to be cut, luxuries have to go.

There are other luxuries that tend to become needs. TVs, cable, Internet service, certain clothes, particular foods, and even some social activities. They become such common parts of our lives that we don’t even think twice before paying for them. When it comes time to make hard decisions, we think of these things as “needs,” and feel that they can’t possibly be cut out.

This happened to someone I know recently. He was sure that he had cut all his expenses to the bone. “I’m only paying for what I need,” he insisted. “There’s nothing to cut and I can’t get ahead.” A look at his expenses, though, showed that he could be on a cheaper Internet plan, he didn’t need the satellite TV, and he could have gotten rid of the smartphone plan. Also, he ate out five times a week and paid for a gym membership. He was shocked when I pointed out that he didn’t need these things — and even more shocked when he realized that he was spending $350 a month on these “needs” that were actually luxuries.

Is It Wrong to Spend on Luxuries?

I don’t think it’s wrong to spend on luxuries; after all, I enjoy my smartphone, and have a hard time imagining life without it. I also think that it’s important to enjoy life, and some of these luxuries can enhance your quality of life.

However, the problem comes when your propensity to spend on luxuries leads to debt. If you are in debt because of the luxuries that you insist on having, that’s when it becomes a problem.

I also think it’s a problem when you aren’t realistic about things that are needs and things that are luxuries. Just because you’re used to having something in your life doesn’t mean that it’s a true need. You need to be able to draw that line. Step back and think critically about your expenses. Don’t justify luxuries by calling them needs, and recognize the luxuries so that you can cut them out of your budget when a financial setback calls for it.

When you can look at your expenses with clear eyes, and acknowledge the luxuries for what they are, you will be in a healthier place financially — and it will be a little easier to make the hard decisions if those choices become necessary.