“How to Budget and Reduce Discretionary Spending”

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Understanding Discretionary Spending

Budgeting is a crucial step in creating a solid financial plan. While it’s essential to prioritize saving for the future and paying off debt, it’s also important to allocate some funds for an enjoyable lifestyle. Whether you’re budgeting for the first time or reassessing your current approach, the right amount for discretionary spending depends on your income, other expenses, and financial goals. Planning for “fun” spending can help you feel less restricted and make it easier to stick to your budget.

What Is Discretionary Spending?

Discretionary spending encompasses all nonessential expenses. These costs are not necessary for your and your family’s basic needs. Essential expenses like rent, utilities, groceries, and debt payments are not considered discretionary spending.

Examples of Discretionary Expenses

Common types of discretionary spending include:

• Streaming service subscriptions
• Dining out, takeout, and food delivery
• Gym memberships
• Concert and event tickets
• Vacations
• Coffee shop purchases
• Hobby-related costs
• Books
• Electronics
• Jewelry
• Charitable contributions

Note that some essential expenses can become discretionary if you spend more than what’s required for your basic needs. For example, extra spending on snacks, fine dining, expensive clothing brands, or vehicle upgrades can be considered discretionary expenses.

How Much Should You Budget for Discretionary Spending?

The amount you should budget depends on your income, expenses, and financial goals. If your income is low or you have significant debt payments, it might be wise to reduce discretionary spending to save more or pay down debt. Conversely, if you have a higher income, you may afford to spend more on your lifestyle.

Consider the 50/30/20 Approach

If you’re unsure where to start, consider the 50/30/20 budget approach:

• Spend 50% of your monthly income on necessities.
• Spend 30% on discretionary expenses.
• Allocate 20% toward debt payments and savings or investment goals.

This framework can be customized based on your situation. If you have a lot of debt or ambitious savings goals, you may want to adjust these percentages accordingly.

How to Reduce Discretionary Spending

If you’re spending too much on nonessential expenses, cutting back can help you meet your basic needs, save more, and pay down high-interest debt. Here are some steps to achieve this:

Track Your Spending

Review your expenses for the past three months and categorize each one to understand where your money is going. This can help you identify areas to reduce nonessential spending.

Cut Back on Unused Subscriptions

Identify monthly subscriptions you don’t use regularly and cancel them. Consider keeping one streaming subscription active at a time and switching between services based on what you’re watching.

Reduce Other Recurring Costs

If you have a gym membership you don’t use or a subscription to a food delivery app, consider whether you can benefit from the savings by canceling them.

Prepare for Impulse Spending

While occasional unplanned purchases are fine, frequent impulse buys can wreck your budget. Stick to your shopping list at the grocery store and add online items to a wish list, revisiting them after a few days to decide if you still want them.

Find Cheaper Ways to Maintain Your Lifestyle

Look for ways to maintain your lifestyle while cutting costs. For example, share streaming subscriptions with friends or family, or get a library membership instead of buying new books.

Build and Maintain Good Credit to Minimize Costs

Your credit score can indirectly affect your discretionary spending, especially if high-interest debt payments are consuming a significant portion of your budget. Review your credit score and report to evaluate your credit health and look for opportunities to improve it. With good credit, you may be able to refinance or consolidate debt at a lower interest rate, freeing up more cash for other financial goals and discretionary spending.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals with the best mortgage solutions.

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