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 the budget, and you’d still get by. Here are some examples that can help you better understand discretionary spending and some easy ways to reduce these non-essential expenditures.

1. Dining out at restaurants or ordering takeout.

2. Entertainment expenses such as movie tickets or concerts.

3. Hobbies and recreational activities like sports equipment or arts and crafts supplies.

What Is Discretionary Spending?

In personal finance, discretionary spending is money used for wants as opposed to basic needs.

What Is the Difference Between Discretionary Spending and Non-Discretionary Spending?

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, clothing, 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.

Discretionary Spending Non-Discretionary Spending
-Optional spending on things you want but don’t need
-Can usually be eliminated from budget without serious consequences
-Mandatory spending on things you can’t live without
-Can’t be eliminated from budget without serious consequences
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What Are Some Examples of Discretionary Spending?

Three good examples of discretionary spending are entertainment, hobbies and leisure travel expenses. Although they might have a positive effect on your life, and maybe even your physical and psychological well-being, expenditures in these budget categories are wants, not needs.

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A discretionary expense for you might be essential for someone else. If you don’t own a car and live too far from the store, 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 other examples of discretionary spending include:

Some Not-So-Obvious Examples of Discretionary Spending

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

Reducing Discretionary Spending: 10 Ways To Save Money on a Tight Budget

Regardless of how tight the budget gets, you have some bills that you must pay. The best way to ensure having enough money for these essential expenses is to cut back on discretionary spending. The following tips can help reduce the budget until your financial situation improves.

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1. Document Your Spending

You have to know where your money is going before you can make decisions about what to cut. “The most important step is to write it down,” says J. Michael Collins, family and consumer economics specialist with the UW-Madison Division of Extension, on the UW website. “Once you have it on paper you have a much better sense of where the money goes. Pick one week and track everything you spend. You will probably be surprised.”

Also look at your most recent bank and credit card statements and your transaction history for any cash management and payment apps you use.

2. Separate Discretionary From Non-Discretionary Expenses

“Once you know your current expenses, split them into two categories — essentials and extras.” Wells Fargo recommends. Extras can be cut, and you might be able to reduce spending on essentials.

3. Set Savings Goals

Once you’re clear on your expenses, decide what you’ll do with the money you save when you reduce them, whether that means establishing an emergency fund, bulking up retirement savings or socking money away for a bucket-list vacation. Having specific goals for the freed-up money will motivate you to stick with your budget.

4. Identify Obvious Waste

You’ll probably be able to look at your list and immediately spot at least a few opportunities to save money. Perhaps you pay a monthly gym membership but haven’t used it in months, or you have a cable package made redundant by streaming subscriptions. Eliminate these larger, unnecessary expenses from your budget.

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5. Plug Small Budget Leaks

Watch for all the small expenses that alone seem harmless but can quickly add up to a significant amount by month’s end. Consider things like bank fees, cell phone insurance and unneeded cloud storage that cost just a couple of dollars per month but add up over time. Take steps to reduce them or cut them completely.

6. Control Impulse Spending

Unplanned purchases can also harm your budget. You may typically leave a little room in the budget for impulse buys, but avoiding them can be a great source of savings. Whether it’s some extra food item at the grocery store or a new shirt you spot while browsing online, if you didn’t plan to buy it before you saw it, skip the purchase.

7. Keep Food Costs in Check

Food may be one of the easiest budget categories to trim. There are many ways to save, including meal planning around your grocer’s weekly sales and using digital coupons and grocery apps.

Cut back on restaurant visits and deliveries, too. You’ll save on the cost of the food and the tip for your server or delivery person. 

8. Find Free and Cheap Sources of Entertainment

Don’t cut out all the fun stuff when the budget is tight. Finding cheaper ways to do the things you enjoy rather than going cold turkey will help you stick with your tight budget.

9. Don’t Overlook Any Essential Expenses for Which You May Be Overpaying

You need a place to live, and your car may be necessary, but there are still ways to save on these essentials.

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Shop for cheaper auto insurance, find a coupon for that next oil change and reduce unnecessary trips to save on gas.

To trim living expenses, look for ways to reduce utility costs and consider renting out that extra room. If you have homeowners or renters insurance, make sure you aren’t overpaying.

10. Stop Using Your Credit Card

If you already have a credit card balance you’re paying down or no longer have the money to pay off your card in full each month, try to stop using it — or at least use it less. Credit card interest is costly and will only squeeze your budget even tighter.


When the budget gets tight, you may not be able to trim your essential expenses enough to get by. Cutting out or reducing discretionary spending is usually necessary. Start with the discretionary spending you won’t miss, and then find ways to save money on your favorite activities, hobbies and other discretionary budget categories. Keep up the momentum as your situation improves.


Here are the answers to some of the most frequently asked questions regarding discretionary spending.
  • What is discretionary spending vs. mandatory spending?
    • Mandatory spending, also called non-discretional spending, is just that – spending that is mandatory. Items in this category might include your mortgage or rent, food and car payments. Discretionary spending, on the other hand, would include items that are nice to have but are not necessary.
  • What are discretionary expenses in a budget?
    • Some discretionary expenses could be streaming subscriptions, warehouse club memberships and hobby items. Keep in mind that what is discretionary to you might be mandatory for someone else, so this budget category can range in what it might include.

Daria Uhlig contributed to the reporting for this article.

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