Discretionary spending

Discretionary means at your discretion: you decide, purchase by purchase, whether it happens. The test is what would stop if you decided this morning to stop it. Dining out stops at once; the rent does not, the car payment does not, and the streaming subscription does not until you cancel it. Discretionary spending is the only part of a month that can be different by the end of the same month, which is why every cut starts there and why most budgets are broken there. It is not the same as wasteful spending: it is the part of the month that was chosen, and the point is to choose it rather than to zero it.

In a sentence

• "Our discretionary spending came to $650 last month, most of it dining out."
• "Rent cannot be cut this month. Discretionary spending can, which is why the cut starts there."
• "Look at discretionary spending on its own and the month stops reading as over budget just because rent left on the 1st."

How it works

Every line of a month's spending sits in one of three groups, and the test for each is the same: what happens if you decide, today, not to spend it.

Discretionary spending = total spending − committed bills − necessary variable spending

To find it for a real month, list every purchase, take out the committed bills, take out the basic version of each necessary variable line, and what is left is discretionary. A mixed purchase is split at the cheaper version's price: a $550 grocery month with $430 of ordinary food and $120 of specialty items is $430 necessary and $120 discretionary.

A subscription is the awkward case. It is discretionary in purpose, a want that could go, and committed in mechanics, because it charges until you cancel. For this month's planning it belongs with the bills; cancelling it is how it becomes discretionary again.

An example

A household with $4,400 of take-home pay, sorted into the three groups.

Of the $3,600, only the $650 could have been different by the end of the month without a phone call, and it is 15% of take-home pay. If next month needs to keep $200 more, this is the line it comes from, and a plan that takes the $650 to $450 is realistic where one that takes it to zero is not. The $2,290 of committed bills is where the larger savings are, but each of those takes a cancellation, a renegotiation or a move, and the month after next is the earliest it shows.

Why it matters

Discretionary spending is where a month can be changed and where a month is judged. A cut has to come from it in the short run, and the useful order is the biggest discretionary category first, since a rule about how often you eat out moves the total and a resolution to be careful about coffee does not. Reading the month is the other use. Bills leave in the first week, so a total that compares all spending with all of the budget reads as far ahead of pace on the 5th and says nothing; the discretionary total, measured against the part of the budget not committed to bills, is the figure that says whether the month is on track. A household that judges itself on the whole total either panics early or stops looking.

Discretionary spending versus discretionary income

Discretionary income is what is left of take-home pay after the essentials are paid; discretionary spending is how much of it you actually spend. In the example, the household's discretionary income is $1,450, take-home pay minus the committed bills and the necessary variable spending, and its discretionary spending is $650, so the $800 difference is what the month kept. The first figure is a ceiling and the second is a choice, and the gap between them is what the month saves. See Discretionary income.

Common questions

Is discretionary spending the same as variable spending? No. Variable describes an amount that changes from month to month, groceries or the electric bill; discretionary describes a purchase you could skip. Groceries are variable and mostly not discretionary; a streaming subscription is fixed and discretionary in purpose. See Variable expense.

What is a good amount of discretionary spending? There is no figure that fits every household. The 50/30/20 rule treats wants as a ceiling of 30% of take-home pay, and a household saving for something specific runs well under it. The useful comparison is with your own last three months: measure it first, then decide whether it is buying what you want it to. See 50/30/20 rule.

Are groceries discretionary spending? Partly. The basic grocery run is a need, and the specialty items, the premium brands and the takeout counter on top of it are discretionary. Sort the line at the price of the cheaper version and put the rest with the wants.

Is a subscription discretionary spending? In purpose, yes; in mechanics, no, because it charges until you cancel it. Plan it with the bills for the month ahead and treat the cancellation as the decision, since that is the only point at which the spending is at your discretion.

Go deeper

• Needs versus wants sorts a real month line by line, splitting the mixed purchases at the cheaper version's price.
• How to cut spending without a budget cuts in the order that moves the total, fixed bills first and then the two or three variable categories that are largest for you.
• How to find spending leaks finds the small repeated charges by sorting ninety days of transactions by merchant rather than by category.
• The Budget calculator splits your monthly take-home pay into needs, wants and savings with the 50/30/20 rule or shares of your own, and shows the dollar amount each bucket gets.

Where it shows up in Zypper

Zypper can show the discretionary picture on its own. Hide recurring, in the budget page's display settings, removes recurring payments from spending and the committed amount from the budget, leaving your discretionary spending against the part of the budget that was not committed to bills, and the pace guide is measured against that uncommitted part, spread evenly across the month. Categories that trade off against each other, dining out, coffee, entertainment, can be marked Flex to draw from one shared flex budget while each transaction keeps its own category. See Tracking your spending pace and Flex spending for the details, or get started with Zypper to see this month's discretionary total.