One of the most important personal finance basics is understanding the difference between needs v. wants. This is important because when you can divide your expenses into categories of needs and wants, you can prioritize your spending and make a true financial plan that can help you reach your goals.

Needs

These are necessary things. Needs encompass what is required for you to survive. Shelter. Food. Clothing. These are needs. Heat for your shelter, and transportation to a job can also be considered needs. If you are in debt, your minimum payments may be considered needs. Put savings and retirement accounts in this category, so that they can be prioritized over wants.

Wants

Society has taught us to think that many things fall under the category of needs. TVs, Internet (only a need if you have an online business), cell phones. You can probably think of a few more. The truth is, you should only pay for wants after you have paid for your needs, and only if there is money left over.

When needs expand into wants

Sometimes, something you need gets out of control. A house that is bigger than you can actually afford. Car payments when you can't really afford a car, and there is adequate public transportation. Eating out instead of making most of your meals at home. All of these things cover needs, but they are taken to the level of want.

Personal finance basics requires that you order your expenses so that needs and obligations are taken care of first. Then you prepare for the future with savings and retirement accounts. THEN, if there is anything left, you prioritize your wants.

The only way to truly build wealth is start living within your means, spending less than you earn.