What Is Discretionary Spending? How You Can Reduce It and Save More

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Discretionary spending is non-essential spending that isn’t mandatory for your basic needs like shelter, food, healthcare, work and personal care. Many expenses are essential, but discretionary spending could get dropped from your budget, and you’d still get by. While cutting other expenses, like eating out at a restaurant, may hurt from a quality-of-life standpoint, they aren’t “essential” in the sense that they are absolutely necessary for life.

Discretionary Spending vs. Discretionary Income

Discretionary income is what’s left after you’ve covered essentials like rent, food and utilities. Discretionary spending is how you choose to use that leftover money.

For example, if you earn $6,000 a month and your essentials cost $5,000, you have $1,000 in discretionary income. You might use it for things like dining out or upgrading your phone–nice to have, but not necessary.

That extra money doesn’t have to be spent, though. Saving it instead can strengthen your finances, whether by building your emergency fund or growing your retirement savings.

Common Examples of Discretionary Spending

Not everyone spends their discretionary income on the same items. However, as a whole, these are some of the most popular discretionary spending categories in the U.S.:

• Dining out and coffee runs
• Entertainment (movies, concerts, subscriptions)
• Travel and vacations
• Shopping for clothes, gadgets, or home décor
• Hobbies and fitness (gym memberships, sports equipment)
• Gifts and celebrations
• Salon and spa services

Keep In Mind

It’s essential to note that what may be a discretionary expense for you might be a necessity for someone else. If you don’t own a car and live too far from the store, for example, a grocery delivery fee might be an essential expense for you, while it would be discretionary for someone who can drive to the store.

Some spending is a mix of essential and discretionary, such as with the following purchases:

• Buying more than you need of an essential item, such as a house, car, clothing or food
• Using more electricity, water or gas than necessary
• Eating out rather than cooking at home
• Adding a few days of vacation to a business trip

Discretionary vs. Non-Discretionary Expenses

Discretionary spending is optional. The things it pays for are nice to have if you can afford them, but the only consequences of not having them are frustration and disappointment.

Compare that to non-discretionary spending on mandatory items like mortgage or rent, utilities, food and perhaps a car to get you to work. Non-discretionary spending is sometimes even referred to as mandatory spending, since doing without these items would have dire consequences to your health and well-being.

Knowing the difference between discretionary and non-discretionary expenses is not simply an exercise in denying yourself or delaying gratification. It actually identifies the spending you can cut when times get tough. This gives you the flexibility to modify your budget based on your varying personal finance situation.

How To Budget for Discretionary Spending

There are several ways to manage discretionary spending, and one of the most popular is the 50/30/20 rule. Under this rule, you split up your expenses in the following ways:  

• Fifty percent of your income goes to needs 
• Thirty percent goes to wants 
• The remaining 20% goes to savings or debt 

 For example, if you earn $5,000 a month, you’d have $1,500 for non-essentials. 

Of course, this model doesn’t fit everyone. You might prefer to save more and spend less on wants. The key is to build a budget that reflects your income, goals, and lifestyle.

Budgeting tools can help — many apps let you set category limits and send alerts if you overspend. If you prefer a hands-on approach, the envelope method uses cash to limit spending by category. Once an envelope is empty, that category is done for the month.

How To Reduce Discretionary Spending Without Feeling Deprived

While cutting all discretionary spending might make sense mathematically, it’s not realistic–or healthy. Everyone needs some enjoyment to stay balanced. The goal is to reduce spending without feeling deprived. Here are a few ways to cut back while still enjoying life:

Identify What Matters Most

Have you ever heard the expression, “you can have anything you want in life, just not everything?” If you can live by this motto, it can help you overcome any feelings of denial when you don’t make a purchase. Instead of complaining about all the things you can’t have, prioritize what’s most important to you when it comes to discretionary purchases.

Set Small Monthly Limits

Within your overall budget, have a separate, small budget for “fun funds.” Unless you’re in a severe financial predicament, you can likely set aside $10 or $20 here or there for things like candy bars, a movie or a casual lunch with friends. Even if your overall budget remains tight, these small outlets can help release the stress of not spending more on yourself.

Swap Expensive Habits for Cheaper Ones

Try to find lower-cost alternatives for your expensive habits. Here are some examples:  

• If you spend a lot of money on designer coffee, save yourself the money and brew your own coffee.  
• If you love to eat fancy meals, learn how to cook them yourself. Even if you use high-end ingredients, you can save 50% or more on a meal by making it at home.  
• Instead of buying bottled water every time you go out, invest in a reusable bottle. 

Delay Big Purchases

Impulse spending is a common way people end up in credit card debt. You might buy something in the moment, only to rarely use it later — a poor use of discretionary funds. Instead, try waiting a few days before making big purchases. Often, the urge fades, helping you save money without feeling deprived.

Why Managing Discretionary Spending Matters

The less you spend on non-essentials, the more you can put toward what really matters — like savings, debt repayment and long-term goals. Even cutting a few hundred dollars a month can help you build an emergency fund, pay down debt, and invest for the future.

A strong emergency fund can cushion you during job loss or inflation. Investing early helps your money grow over time. And paying off debt frees you from interest payments, making it easier to build real wealth. All of that starts with trimming discretionary spending.

Daria Uhlig contributed to the reporting for this article.

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