Trendy clothes. Daily Starbucks coffee. All the newest CDs. What is your weakness? Everyone has one, whether it's a common one, like the ones just listed, or something a little different, like needing every book and magazine by Rachael Ray, the oh-so-popular chef.
In budgeting, these common spending habits are identified as discretionary expenses. That means they're something we buy that we could either live without or find in a cheaper version that would work just as well. If they're allotted for in your budget, discretionary expenses can be a reward for cautious spending. But if you haven't set aside the money for them, or if you have problems doing without them, they can easily wreck your budget and put you in a financially tight spot.
So, what are your discretionary expenses? Do you buy new shoes every week, or pay for a gym membership you never use? It can be hard to cut some things out of the budget. But it really can be done, and without completely doing away with all the fun things in your life. After all, that is the purpose of budgeting -- to make room for what we want and need, by cutting out what doesn't affect the quality of our lives.
Throughout this article, we’ll we identify common unnecessary expenses that often cost us more money than we realize. We’ll explore ways to distinguish needs from wants and how to leave a little room for the wants in the budget.
Identifying Discretionary Expenses
If you've read this far, you've taken the first step toward managing your discretionary expenses: You're getting more information so that you can determine which expenses you can actually get by without. Once you’ve identified those expenses, you’ll be able to save yourself some money, and hopefully, still have a little fun money left in your budget.
Most people have similar discretionary expenses:
Of course, many other expenses can be labeled discretionary, based on whether you actually need the items you’re buying. To determine if an expense in your budget should be classified as discretionary, ask yourself these three questions:
- Do I really need it?
- Can I get a less costly version that will still function the way I need it to?
- Will I need it permanently, or could I borrow or rent it cheaper?
If you don't actually need an item, but you'd still like to have it, it’s definitely a discretionary expense. Likewise, if you need the item, but the one you want has far more features than you'll ever use, it’s a discretionary expense. For example, if you need a cell phone, you can take the one that comes free with your service plan instead of buying the one that has Internet, instant messaging and a camera.
Always determine whether an expense is necessary before handing over your money. Once you've identified an expense as discretionary, you can make a better judgment concerning its value. If you realize that it’s using up your fun money, you may be less likely to buy something that you won't really use.
Now that you can identify discretionary expenses, you need to find ways to cut out unnecessary spending. Read on to learn more about saving money without living like a hermit.
Minimizing Discretionary Expenses
Since you've identified your discretionary expenses, you’re prepared to start managing or improving your budget. Staying on budget can be difficult, but here are some tips that can help:
Determine which expenses are really worth paying extra for the nicer model. If it's the fancy coffeepot with two spouts and a timer that you really want, choose that as your "worth it" expense. Or, if you really want a cell phone with a camera, get it, but be sure to buy only the amount of minutes you'll actually use. Take the plainer model on all your other discretionary expenses.
Cut back. If you currently get five magazines a month, cut back to two; cutting three magazine subscriptions can save you $50 or more. Plan to play golf (an expensive sport) only on the public course for a while, and save on the higher fees at the private courses. This way, you don't have to completely do away with the things you want; you just don't get as much or as many of them.
Find a better way. Shopping at the nicer consignment stores can save you big bucks and still let you dress yourself and your family in great clothes. Start a swap meet with other mothers for children's clothes, books and toys. Rent movies instead of going to the theater; if you watch from home, you can see a movie, save money and not have to listen to someone else's crying kids.
Eat in. One of the most common budget-killers is eating out. Cook all your meals at home, and save lots of cash. If you have a family, vote on which night each week you'd like to eat out; let that be the only meal you get from a restaurant for the week. Pack lunches for work, and see how much it helps your budget. You'll be pleasantly surprised.
Track due dates. Whether they’re from the credit card company, the video store, or the library, late fees and overdue charges can add up -- and they’re completely avoidable. Devise a system to remind yourself to return borrowed items.
Pay attention. The most important thing you can do to lower your discretionary expenses is to monitor your spending. Use a budget planner to get your budget under control, and be careful to write down any money you spend on discretionary expenses. Set aside cash for these expenses each week, and make up your mind that when the cash runs out, there are no more discretionary allowances until next week. If you really pay attention, you can make a tremendous difference in your budget.
It's not always fun to budget. But it can be great to know that you’re in good shape financially. And, if you monitor your spending, you can still have the discretionary expenses that mean the most to you. Life can still be sweet; you just have to work at it.
For more tips and budget tools, just follow the links on the next page.
Related HowStuffWorks Articles
More Great Links
- Beattie, Andrew. "Should You Pay in Cash?" http://www.investopedia.com/articles/pf/08/pay-in-cash.asp (5/13/08)
- “Making Every Penny Count.” http://www.careonecredit.com/Knowledge/manage-expenses.aspx (5/13/08)
- "Set Aside Complexity: Ten Simple Saving Strategies." http://www.totalcandor.com/savingstrategies.php (5/13/08)
- "Understanding Savings." http://www.bankofamerica.com/financialtools/index.cfm?template=saving_basics (5/13/08)