By far the hardest spending items to estimate in a household budget are the so called “discretionary” items.
Most people are quite good at understanding how much many of their costs are – think mortgage payments or rent, loan payments, utilities and groceries and motor vehicle running costs. These costs are essential and need to be paid in order to keep a roof over our heads and feed ourselves and our families. It’s a good thing most people understand them.
Discretionary spending, though, is the area that brings people undone unless they pay some attention and apply some discipline.
So what exactly is discretionary spending?
In simple terms, it’s any spending that isn’t essential to keeping the household running, being able to work, or provide food and shelter.
Although people may argue that alcohol, cigarettes, expensive shoes (perhaps many pairs of them), restaurant meals, take away food, holidays, cosmetics and skin care and expensive toys are necessary it’s generally not really the case.
Of course life would be pretty boring if we can’t treat ourselves to some of life’s pleasures, but going overboard can seriously harm a person’s ability to keep on top of their finances.
If a person smokes a packet of cigarettes a day it could cost $14,000 per year – is it necessary?
If a family eats takeaway meals an extra night a week it could cost $3,000 per year – is it necessary?
An extra weekend away every quarter could cost $5,000 per year – is it necessary?
Expensive label shoes and clothing could cost thousands more per year – is it necessary?
Of course it’s easy to justify spending on those discretionary items at the time. “Life is short”, “We deserve it”, “You can’t take it with you”, “All work and no play makes Jack a dull boy”. The reality though is that cutting back a little can easily result in worthwhile savings that can be diverted to areas that will make a huge difference (paying down debt, or investing for the long term for instance)
Like anything worthwhile it sounds so simple but can be hard to implement. Take some time to look at what you really do spend on those discretionary items and take action to get things under control.
If you would like some assistance with managing your money and spending, give the team at Steve May a call and start a conversation today.
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Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)