Discretionary Expenses

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 05, 2023

Get Any Financial Question Answered

What Are Discretionary Expenses?

Discretionary expenses refer to non-essential spending on goods and services that are not required to maintain basic living standards. These expenses are often associated with leisure, entertainment, and personal indulgence.

Proper management of discretionary expenses is crucial for maintaining financial stability and achieving financial goals. By controlling discretionary spending, individuals can prioritize savings, reduce debt, and allocate resources to essential needs.

Discretionary expenses can be divided into various categories, such as dining out, hobbies, travel, and personal care. Explore the common types of discretionary expenses, budgeting strategies, and tips for reducing discretionary spending while maintaining a balanced lifestyle.

Common Types of Discretionary Expenses

Dining Out and Entertainment

Eating at restaurants, going to the movies, or attending concerts are examples of discretionary spending on dining out and entertainment. These expenses can add up quickly and have a significant impact on one's budget.

Hobbies and Recreation

Spending on hobbies and recreational activities, such as sports equipment, art supplies, or memberships to clubs, also falls under discretionary expenses. These costs can vary widely depending on individual interests and preferences.

Travel and Vacations

Travel and vacations are often significant discretionary expenses, including airfare, accommodation, and sightseeing. These costs can be managed through budgeting and planning, but they still represent non-essential spending.

Clothing and Accessories

While clothing is a necessity, spending on high-end brands, luxury items, or excessive purchases is considered discretionary. This category also includes accessories such as jewelry, handbags, and shoes.

Electronics and Gadgets

Purchasing the latest smartphones, tablets, or gaming consoles are examples of discretionary spending on electronics and gadgets. These items can be expensive and may need to be balanced against other financial priorities.

Personal Care and Beauty

Discretionary expenses in personal care and beauty include salon visits, spa treatments, and high-end cosmetics. These costs can be reduced through DIY alternatives or by finding less expensive options.

Budgeting for Discretionary Expenses

Creating a Realistic Budget

To manage discretionary expenses, create a realistic budget that accounts for all sources of income and essential expenses. This process will help identify how much money can be allocated to discretionary spending without jeopardizing financial stability.

Allocating a Percentage of Income

One popular budgeting method is to allocate a specific percentage of income to discretionary expenses, such as the 50/30/20 rule. This approach suggests allocating 50% of income to essential needs, 30% to discretionary wants, and 20% to savings and debt repayment.

Separating Needs From Wants

Distinguish between essential needs and discretionary wants to better control spending. This distinction can help prioritize spending on necessities and allocate the remaining funds to discretionary expenses.

Setting Spending Limits

Establish spending limits for discretionary expense categories to maintain control over spending. Regularly review and adjust these limits to ensure they remain appropriate for current financial goals and circumstances.

Budgeting for Discretionary Expenses

Strategies for Reducing Discretionary Expenses

Comparison Shopping

When making discretionary purchases, compare prices across multiple retailers to find the best deals. This practice can help save money without sacrificing quality or enjoyment.

Utilizing Coupons and Discounts

Take advantage of coupons, discounts, and sales to reduce discretionary spending. These savings opportunities can be found online, in newspapers, or through mobile apps.

DIY and Home-Based Alternatives

Consider do-it-yourself or home-based alternatives to discretionary expenses, such as cooking at home, engaging in hobbies that require minimal investment, or exercising without a gym membership.

Cutting Back on Non-essential Items

Evaluate discretionary spending habits and identify areas where costs can be reduced. For example, limit dining out to special occasions, eliminate unnecessary subscriptions, or postpone non-essential purchases.

Strategies for Reducing Discretionary Expenses

Tracking and Monitoring Discretionary Expenses

Importance of Tracking Spending

Tracking discretionary spending is crucial for understanding where money is being spent and identifying opportunities to reduce costs. Regularly monitoring expenses can also help identify patterns and develop healthier spending habits.

Tools for Monitoring Discretionary Expenses

Various tools can help track and monitor discretionary expenses, such as budgeting apps, spreadsheets, or expense tracking software. These tools can provide valuable insights into spending habits and help individuals stay on track with their financial goals.

Regularly Reviewing and Adjusting Spending Habits

Consistently review discretionary spending and make adjustments as needed. This practice ensures that spending remains within budget limits and supports long-term financial goals.

Balancing Discretionary Expenses With Financial Goals

Prioritizing Savings and Debt Repayment

Ensure that discretionary spending does not impede progress towards savings and debt repayment goals. Prioritize setting aside funds for an emergency fund, retirement savings, or paying off high-interest debt before allocating money to discretionary expenses.

Establishing Short- and Long-Term Financial Goals

Set short- and long-term financial goals to provide a clear direction for discretionary spending decisions. These goals can help individuals determine how much money should be allocated to discretionary expenses and when to adjust spending habits.

Adjusting Discretionary Spending to Support Goals

If financial goals are not being met, evaluate discretionary spending habits and make necessary adjustments. This may involve cutting back on certain expenses, reallocating funds, or finding alternative sources of income.


The Role of Discretionary Expenses in Financial Planning

Discretionary expenses play a significant role in financial planning and overall quality of life. By managing these expenses effectively, individuals can enjoy the things they love while maintaining financial stability and working towards long-term financial success.

Importance of Balancing Enjoyment and Financial Responsibility

Finding the right balance between enjoyment and financial responsibility is crucial for maintaining a healthy financial life. By making informed decisions about discretionary spending, individuals can enjoy their preferred lifestyle without sacrificing financial security.

Developing Healthy Spending Habits for Long-Term Financial Success

Developing healthy spending habits and consistently monitoring discretionary expenses can lead to long-term financial success. By prioritizing financial goals and making thoughtful spending decisions, individuals can create a stable financial foundation and work towards achieving their dreams.

Discretionary Expenses FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

Meet Top Certified Financial Advisors Near You

Find Advisor Near You