how to budget for discretionary expenses
it may be necessary for households and businesses to cut back on certain expenditures in response to decreases in income during tough economic times that s why it s a good idea to track discretionary expenses separately from essential ones so that it is easy to see how costs can be reduced one helpful budgeting tactic is to rank discretionary expenses in order of importance from the least to most important if a job loss or income reduction forces budget cuts household members or a company s management team can easily identify the first discretionary expense to place on the chopping block discretionary expenses vs non discretionary expensesexpenses are divided into discretionary and non discretionary costs in other words essential and non essential expenses some expenses such as vacation costs and luxury items are not necessary to maintain a household and thus are classified as discretionary expenses the income earner can pay for these goods or services at their discretion certain expenses though must be paid to keep things running these are called non discretionary expenses these are considered essential expenses as the income earner must regularly pay them or suffer the consequences 1examples of non discretionary spending include housing costs taxes and health insurance for individuals payroll warehousing costs and transport are non discretionary expenses for businesses 