One Simple Thing You Can Do Today to Start Living Frugally

When my friend John lost his home and all of his belongings in a fire, he lived out of the back of his van to save money while he rebuilt his house. While he pined for his lost possessions, John immediately discovered that the one thing he needed to survive this catastrophe, of all things, was a membership to a 24-hour gym near his work.

At night, John would sleep in the back of his van that he parked, for free, at the gym. His gym membership also provided him with a clean bathroom where he could shower, and a locker where he could store his work clothes. Not only was John able to hide his homelessness for an entire year from his co-workers, he also developed impressive six-pack abs from all the extra time he spent working out.

When I first learned that John was living out of his van, I was initially appalled by his housing situation. I thought he was crazy. I never want my friends to be homeless. But, by the end of the year, I realized that John wasn't homeless — he had just chosen camping over renting. I had an unburned house, but in one year John managed to put more money into his retirement account than I had in a decade! Because his minimalist living situation only gave him the space to store things he really needed for survival, he'd managed to save 90% of his salary!

While I wouldn't wish John's literal trial by fire on my worst enemy, his extraordinary response to financial catastrophe provides a great lesson: Everyone would save a lot more money if we only bought what we needed, instead of buying what we want.

Why Are Definitions Like "Want" and "Need" Important?

Unless you are super-wealthy, separating wants from needs is the key to staying on budget. If you can't tell the difference between the two, then it becomes impossible to prioritize spending.

Pretty much every article ever written about frugal living harps on cutting extraneous expenses like fancy coffee. It's pretty much a known fact to anyone who is looking to cut expenses that fancy coffee, like cable television, is the work of the bad budget devil, while food and lodging are obvious necessities.

The reason why fancy coffee is a staple concept of personal finance articles is because it's so clearly a luxury item, even to someone like me who requires caffeine to open her eyes in the morning. The peril of buying fancy coffee is easy to explain and to understand. But, there are so many things that aren't so cut and dried.

For example, I need to have access to email for my Wise Bread job. I work remotely. I have met exactly one other Wise Bread co-worker, in person, exactly once in the five years that I have been an employee. However, I communicate almost daily with my editors via email. If I own a laptop, is a smart phone a need or a want?

What Is a Need?

A need is something that is critical to survival. You know, the basics.


Everyone needs to eat, but even food can be considered a want. Because he was using his car as his living space, John's big expense for the year was food. He stored breakfast and lunch ingredients in his office refrigerator, but went out to eat almost every night. Had he wanted to save even more money, he could have lived off simple and cheap meals that met his basic nutritional needs. Restaurant food for him wasn't a need, but the one luxury he gave himself that year. After all, even his least judgmental friends did not want to go back to his van for drinks.

Clean Water

John had free tap water both at the gym and the office for drinking and cooking. He was able to shower at the gym any time he wanted, and didn't have the issue that most homeless people have — no easy toilet access.


In John's case, shelter was a not a house, but rather his car. Shelter is, at its simplest, a safe space to sleep and store your things.

Appropriate Clothing

If I lived in Maine I would need warm boots to protect my feet against the winter cold. (Warm is the operative word here. Appropriate doesn't necessarily mean cute.)

Health Care and Hygiene

If you don't have access to medical care, your life can be uncomfortable and short. If you don't have basic hygiene tools like clean water, you are pretty much guaranteed to be sick. If you don't wear necessary safety gear at work, you are an accident victim ready to happen.

A Job

Without a livelihood, it is impossible to secure the other necessities of life.

What Is a Must-Have?

Elizabeth Warren (yes, that Elizabeth Warren) defines expenses that you don't need but cannot eliminate from your budget as "Must-Haves." For example, John's "Must-Have" was his gym membership. Without the gym membership, he would not have been able to sleep in the safety of the parking lot or use the locker room showers.

While a car isn't a need, many people who live in areas without public transportation "Must-Have" a car to get to work. They also "Must-Have" gasoline and insurance to run the car.

Most jobs require a preparatory education. Since none of us come out of the womb with job skills, we "Must-Have" schooling.

While I "Must-Have" one nice suit to wear to business meetings, unless I am interviewing for the job as Fashion Editor at Vogue Magazine, a black Chanel jacket is not a "Must-Have," even though I am 100% sure that owning one would make me a better person.

What Is a Want?

A want is any other thing you can think of buying. Literally. Any. Other. Thing.

If you really want to start living frugally, why stop at buying fancy coffee and cable television when you can stop buying almost everything you don't need and save loads of cash?

The Things We Can't Live Without: Peer Pressure

This Pew Research Center survey is 10 years old, but over time its results have only become more topical. In brief, in 2006 researchers asked people what items were considered a luxury and what items were a necessity, and then compared these responses to a similar 1996 survey. While most people now consider cell phones to be an absolute necessity, no one considered polling people on their thoughts about cell phones in 1996 because they were such a rarity. Only 49% of people surveyed in 2006 thought that a cell phone was a necessity.

This growing belief that the cell phone is a necessity is not due to superior technology, but because cell phone ownership is now the norm. Today, 64% of American adults not only own a cell phone, they own a smartphone. In 1996, no one thought of a cell phone as anything but an expensive item for the Gordon Geckos of the world.

What these surveys show is what people consider a necessity depends on what is normal to their peer group. It's not what you own; it's what you own in comparison to others. This tyranny of sameness tracks with many financial studies about the relationship between happiness and income. According to a survey by the Harvard Public School of Health, more than 50% of respondents said that they would rather make twice as much as their colleagues, even if it cut their actual income and purchasing power in half!

How to Budget Based on Needs Instead of Wants

Before you can jump-start your new frugal-er life, you need to figure out where you are financially right now. If you are one of the 40% of Americans who don't have a budget, please make one. It's easy.

With budget in hand, categorize each of your expenses as a Need, Must-Have, or Want.

Your Wants Are Your Wish List

Rename your Want category: My Wish List. (You already know that anything on this list is not vital to your survival, so you might as well be honest with yourself). Put your wish list aside for later inspection. No item you want should be a financial priority.

Next Are Needs

Next, look at your Need category. Here's where you need to start getting brain-stormy. (If you are like me, and love to cheat on your budget, then you might want to enlist an honest friend to help you look at each item with a critical, clear eye). Look at each item in your Need category one by one. For example, you need shelter, but do you really need such a big house? Could you save money by moving into a smaller space? Alternately, if you can't move, can you save money by splitting costs with a roommate or renting out part of your house as an Airbnb?

Do you even need a house? No, you don't have to live out of your car like John, but if you work remotely and love to travel, have you considered house sitting or sofa surfing for a fixed amount of time to save on lodging? I should note that John didn't live out of his car forever — just until his house was rebuilt. (He also spent many nights sleeping over at his girlfriend's house and house sitting for friends). Ask yourself if you actually have a surplus of needed things that you can convert into savings or even earnings. For example, can you harvest rainwater to irrigate your yard instead of turning on the hose? Do you really need to eat meat every day, or could you save on food by becoming a part time vegetarian?

Finally, Define Your Must-Haves

Now that you have analyzed your Needs for possible wasted opportunities to save, turn your gimlet eye on your Must-Haves list. If you change some of your Needs, then that will impact your Must-Haves. For example, if you move closer to work, you might be able to bike to work instead of using a car. You no longer Must-Have a car. If you cannot move closer to work and are stuck with a long commute, can you find someone to rideshare with you and help you pay for gas? Most importantly, are some of your Must-Haves really Wants in disguise? Is your truck necessary to your job, or can you downsize to a more gas-efficient car?

Once you have combed through your Needs and Must-Haves lists, calculate your savings. Ta-da! Check out those financial opportunities you could take! You are a budget-crunching genius.

Only when you have managed to wring savings out of your Needs and Must-Haves lists and have some extra money to spend on luxuries, should you look at your Wish List. Prioritize this list according to desire, as you will not be able to afford everything. The things that give you the most sustained happiness should get priority. For example, I love to travel so much that I am willing to forgo just about anything else on my Wish List in order to free up the money for the next trip. I always ask myself: "How much longer will it take for me to afford my next trip if I buy this other thing now?"

Keep Your Want Money Separate From Your Need Money

Just like it's a big accounting no-no to mix your business and personal spending in the same account, it is much easier to screw up your new frugal budget if you keep all your money in the same place. Many banks offer a free savings account when you open a checking account with them. This savings account is an excellent place to park your Wants money. (An even better place would be an investment account that gives a better return, but that's another article).

Since I use the envelope system to manage my money, it's easy to keep my salary out of my wallet, and only purchase what I really need. If you don't have experience with zero-based budgeting, this nifty trick might help you wrap your mind around the concept.

A Neat Side Effect to Defining Wants and Needs: Less Clutter

John's year at the gym taught him an important lesson: "I learned that I actually need very little to have a happy life. In fact, when I finally had the chance to replace the things I'd lost in the fire, I discovered I didn't want most of them."

I am currently trying to downsize my personal belongings to 1000 things. The question I ask myself to make this task easy is: "If my house burned down, would I spend money to replace this item?" If the answer is no, then I know that I don't need that item!

How do you define wants and needs? Has need-based budgeting improved your life or do you hate it with every fiber of your luxury-loving being? Explain yourself in the comments section.

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Guest's picture

Being a visual person, I like stuff to look at. The perfect cobalt blue bowl to serve carrots in, is definitely not a need, but is happifying every time I use it. I also enjoy music, so keep a collection of CD's. Not that these things cost a lot. Yard sales, thrift stores are great places to find almost everything. But unless you really like living as a Spartan or have some major goal you're striving for, quality of life needs to be considered. Separating "need", "goal", and "blow" money solves that dilemma for me.

Max Wong's picture

Hi Olivia--

I completely support your desire to be surrounded by beauty. Who doesn't want to own things that make them happy? People--who don't budget--often mistakenly believe that budgeting=deprivation. In actuality, a good budget can be what liberates you. It can provide a financial roadmap that allows you to prioritize your spending so you can achieve your life goals. Your comment about separating "need" from "blow" money tells me that you already know this. Sadly, 68% of Americans don't have a budget, so they end up spending money on things that don't "happify" them. This leads to a lot of debt and stress.