What are discretionary expenses?
Discretionary expenses are non-essential expenses. Discretionary spending refers to expenses that are not mandatory or essential to an individual’s or home’s survival. You can identify them literally: deciding the specifications of your TV is at your discretion, while your taxes are non-discretionary.
Don’t get it wrong, having money to spend on your wants after you have satisfied all your needs is one of life’s simple joys. And just because an expense is non-essential does not mean it is unnecessary.
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What are examples of non-essential expenses?
Discretionary expenses reflect your lifestyle preferences. They include all the items or services you purchase using discretionary income (i.e., the amount of income left after fulfilling all your essential expenses like transportation, utilities, food and housing). While there’s nothing inherently wrong with discretionary spending, identifying non-essential costs is a crucial first step to better financial management.
Here are some common types of discretionary expenses:
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Entertainment-related expenses
Having multiple entertainment-related expenses can drain your bank account really fast. For instance, having subscriptions to multiple streaming services running at once, frequently dining out, and costly hobbies; all these expenses add up and can leave you in the red before your next paycheck.
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Shopping
We’re not talking about shopping for groceries or other home/personal essentials. Non-essential shopping, in this case, refers to those nice-to-have items (clothing, accessories and home/luxury goods that you buy purely out of choice).
Compulsive buying also falls under this category, as people with shopping addictions tend to go overboard with unplanned spending. Shopping smart means ignoring the urge to buy everything you see and opting for cheaper alternatives rather than sticking to name brands. Shopping smart can also mean buying a quality item guaranteed to last a long time instead of a cheaper alternative that might need to be replaced often.
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Technology
The constant need to upgrade to the latest tech (automobiles, phones and other gadgets) can be a significant and unnecessary discretionary expense.
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Self-care
Expensive beauty treatments, products and services are not always necessary. Splurging on regular salon visits can impact your finances, even if you can afford it. No matter your tax bracket, it is vital to exercise financial discipline.
Building better spending habits
Now that you’ve identified your non-essential expenses, you must adopt strategies to curb excessive spending. Mindful spending habits will help you maximise your income. With sound money habits, you can have more spare cash to save and invest and weave yourself a robust financial safety net.
Below are nine effective techniques you can try out:
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1. Practice contentment & gratitude:
The 2024 edition of the PiggyVest Savings Report shows that Nigerians have fallen on awfully hard times. A positive outlook is more important than ever to push through this harsh season. Stay content by focusing on what you have, and learn how to maximise your resources and be financially ready for emergencies.
2. Prioritise your budget:
It is important to have a realistic weekly/monthly budget to monitor your income and track your spending. In your budget, stipulate a set amount for discretionary expenses. This way, you can meet your wants without spending exorbitantly.
3. Try cash enveloping:
The cash envelop system is a classic budgeting method of stuffing cash in envelopes after allocating them for different purposes. Labels is a PiggyVest feature that works just like cash enveloping; you can create different Labels for different expenses depending on your budget.
4. Prioritise needs over wants:
Using a needs vs. wants principle can help you focus on the essentials first and become selective about non-essential purchases.
5. Avoid lifestyle inflation:
Regardless of changes in income or life circumstances, try to maintain a simple lifestyle. Instead of finding more unnecessary things to spend money on, prioritise saving instead.
6. Delay gratification:
Before making a discretionary purchase, pause to see if that burning desire for the item wanes. Better yet, practise the 30-day savings rule, where you take 30 days to reassess before committing to the new purchase.
7. Set financial goals:
Not setting SMART short or long-term goals may encourage you to spend on a whim. Having financial objectives motivates you to spend less and save more. With PiggyVest’s Target savings, you can do this effectively and save for multiple goals, like buying a car or a new gadget.
8. Eat at home:
Home-cooked meals are generally more cost-effective than dining out. And having food at home will help you avoid impulse food purchases. Indeed, cooking every day can be stressful, but you can make it easy by planning your meals and bulk-preparing them over the weekend.
9. Shop smart:
Some smart shopping tips include making a shopping list, using referral codes, researching and requesting discounts, shopping second-hand and comparing prices. The goal is to save on shopping while still getting great value for your money.
