What comes to mind when you hear any personal finance advice on budgeting and tracking expenses? For some people, all they think about is the cutting back on spending, which often feels restrictive or challenging. That's partly true.
However, the primary goal is to know where your money goes so that you can manage your finances better. So, tracking your discretionary spending can improve your money management skills and help you save more without feeling deprived. Read on to learn more about monitoring your non-essential spending and the impact it has on your overall financial well-being.
What Is Discretionary Spending?
Discretionary spending refers to all non-essential purchases. These are items and services you could live without but choose to buy as they are nice to have.
Some of the common categories of discretionary spending are:
- Entertainment (streaming services, movie & concert tickets)
- Dining out and special meals
- Gym or club memberships
- Beauty services and products
- Self-care products and treats like spa visits and pedicures
- Hobbies and recreation expenses
- Travel and vacation expenses (airline tickets, rental cars, hotels, etc.)
- Clothes shopping and accessories beyond basic needs
- Luxury versions of essential items
Wants vs. Needs
To understand and categorize discretionary spending accurately, you need to differentiate between wants and needs. Generally speaking, needs are those expenses you can't avoid because they are essential for maintaining a basic standard of living. They include:
- Food
- Housing (rent or mortgage payments)
- Utilities
- Transportation
- Health insurance premiums
- Minimum payments on debt (student loans and others)
- Basic clothing
Wants or non-essential spending allow you to enhance your lifestyle beyond the basic living standards. But you can live without them if need be. In fact, that's the expense category you'll first cut back when your finances are tight for whatever reason.
Sometimes the line blurs. For instance, food is a need, but dining at an upscale restaurant is a want. Also, a basic phone plan might be necessary, but the latest iPhone is discretionary.
How Does Tracking Your Discretionary Spending Help You Save?
As we mentioned earlier, tracking your discretionary spending can help you save. It works because the process reveals your financial habits and shows the areas you might be overspending on. People often think they know their spending habits but get surprised when they see how much their frequent splurging on guilty pleasures add up to.
So, the awareness of the amounts going into each non-essential category and your spending patterns makes you more conscious. This is where you start negotiating with yourself whether it's necessary to spend $800 a month on entertainment only. Or, you might wonder if your income and long-term financial goals allow for the amounts you're spending.
This means it's not the tracking that grows your savings. Instead, it's what you do with the information that you gather when monitoring your discretionary spending.
Is Tracking Discretionary Spending all about Deprivation?
No, by now you can tell that tracking your discretionary spending isn't about depriving yourself of the things you enjoy. It's true that you will somehow identify areas where you can cut back on. But the goal is to become more conscious about your spending patterns and make intentional decisions on allocating your resources. In turn, you can align your spending with your financial goals and values while enjoying mindfully.
Here are more reasons why it's important to track discretionary spending:
Identify Leaks and Make the Most of Your Income
Earning more makes managing money effectively easier compared to someone who is barely scraping by. But even if you're saving some money, there might be "leaks" in your financial bucket where money is slipping away unnecessarily. Tracking your discretionary expenses can help you identify those leaks and make the most of your hard-earned cash.
Stick With Your Budget
If you're not using a budget to plan your expenses, you're missing out on opportunities to gain control of your finances. But it doesn't end with creating a budget. You need a system to compare how much you spent on each expense category versus what you'd planned. This way, you can improve your financial planning skills and reach your financial goals sooner.
Avoid Debt
Tracking your discretionary expenses can help you control your spending and live within your means. Once you do that, you can allocate more funds towards essential expenses and different savings categories like emergency fund, investments, and other goals. This reduces the likelihood of relying on credit cards to cover the differences in essential expenses or emergencies and accumulating debt in the process.
Reach New Savings Goals Faster
When you track your discretionary spending consistently, you'll have a better idea of how much money you're left with after allocating for savings and debt, and essential and non-essential expenses. That can give you a good plan of how much you can afford to save toward new financial goals weekly, monthly, or after each paycheck.
Increase Financial Control
Another benefit of tracking discretionary spending is that it leads to behavioral changes that benefit your financial well-being. You'll develop healthier spending habits, create sustainable saving patterns, and become more resistant to marketing pressures. As a result, you'll enjoy increased financial confidence.
In the long run, it will have a huge impact on your financial security. You'll have more money available for investments, be better prepared for emergencies, and have a greater potential for wealth building. This ultimately leads to greater financial security and peace of mind.
How to Start Tracking Discretionary Spending
Tracking discretionary spending or even all other expenses isn't easy for everyone. Sticking with the habit can be even harder especially when it feels tedious or overwhelming. For some, you may even feel uncomfortable confronting your spending habits. But since the benefits are way greater, it's a habit worth investing in, whether you like it or not.
Begin with a simple method you'll actually stick to, whether that's a notes app on your phone, a budgeting spreadsheet, online template, or good old pen and paper. The most important thing is to log in every discretionary purchase right when it happens as waiting until later often leads to forgotten expenses.
So, create your discretionary spending categories then set aside about five minutes each evening to review your day's spending. This daily check-in helps build the habit and catches anything you missed. At month's end, take a bigger-picture look at your spending patterns. Many bank statements now offer automatic categorization of expenses, such as utilities and entertainment. That's a good place to start.
Start Matching Your Discretionary Spending Now to Take Control of Your Financial Future
Are you ready to break free from financial uncertainty and take charge of your financial well-being? We have an innovative tool that helps women track their discretionary spending and invest the matched amount in a diversified ETF. It will help you develop more financial accountability while multiplying your money through investments.
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