When it comes to spending money, there are things you want to buy – and things you have to pay for. That is the line between discretionary costs and everything else. Wishes versus needs.
What are discretionary costs?
Voluntary expenditures are a discretionary expense. You want to buy something, but it is not mandatory. Entertainment and recreational purchases fall into this category.
On the other hand, bills like rent, mortgage payments, and utilities are not discretionary expenses. You have to pay for this. When work on a budgetDiscretionary expenses are drawn from the money left after paying essential bills.
What are some examples of discretionary spending?
“I would describe discretionary spending as the fun stuff, the things you want to spend money on like eating out, clothing, gifts, hobbies, entertainment, vacations, things like that,” says Amy Jo Lauber, a certified financial planner at Lauber Financial Planning in West Seneca, New York.
Discretionary costs can also include:
Electronics like a television or a phone upgrade.
Tickets for concerts and sporting events.
All of these items add to your quality of life, but must be done after the bills have been paid and, ideally, after you have paid pay yourself.
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How do discretionary spending fit into a budget?
You may be spending more on needs than you think. This can prevent you from setting aside enough cash for emergencies and retirement plans.
Accounting for discretionary costs is part of the 50/30/20 budget, a plan for controlled spending. In this system, up to half of your budget is allocated to needs, 30% to needs (the discretionary cost we’re talking about), and 20% to savings and debt payments.
“I like and use the 50/30/20 budget,” says Lauber. “I think it works for people who don’t want to feel guilty about spending on certain things and need a guide on how to save. It provides a simple, sensible framework that is free from the fuss of tracking spending across all categories . “
Make good financial decisions
Thinking about money like this – in buckets of wants, needs, and savings for the future – is part of a process for making good financial decisions.
“I encourage people to pay attention to all of their expenses, not only to discretion, but also to their money and to make decisions with self-confidence based on their own values and needs,” says Lauber.
“This involves using the positive emotions such as hope, joy, joy, generosity, creativity, and dreams to help us manage money in a way that is fun and sustainable.”
For example, try to prioritize the positive emotions associated with long-term plans, such as: B. Retirement or no financial worries rather than those related to short-term satisfaction with pulse spending. Thinking about discretionary spending today can help you meet your long-term wants and goals.