Discretionary spending
The spending you choose, to improve your quality of life.
Discretionary spending is the money you choose to spend once the essentials are covered: the things you want rather than need. It is where you get to enjoy your money, but it is also the part that is easiest to lose track of, so it is worth knowing what you are buying and whether it lasts.
Spending you choose
Discretionary spending is money spent on things you want rather than need, to make life more enjoyable: eating out, streaming, clothes beyond the basics, days out, hobbies. Gifts you buy for other people count as discretionary too.
It can be planned, where you save up for something in advance, or unplanned, a spur-of-the-moment buy. Neither is wrong, but planned spending is much easier to keep in control.
Assets and consumables
It helps to notice what kind of thing your money is buying. An asset is something you own that has value and can be used over time, like furniture, a bike or a phone. Its value can rise or fall, but you still have the thing. A consumable is used up as you use it, like food, a cinema ticket or a tank of fuel; once it is gone, it is gone.
The same money spent on an asset leaves you with something; spent on a consumable, it leaves you with the experience but nothing to sell on. Both can be worth it, but knowing the difference helps you decide.
When 'essential' and 'discretionary' blur
The line is not always tidy, and that is fine. Basic groceries are essential, but a takeaway or treats on top are discretionary. The word consumable describes the type of item, not whether the spending was essential: a weekly food shop and a fancy meal out are both consumables, but only one is a need. Context decides which is which.
Where you live is a choice too
One of the biggest decisions is housing. A home can be owned outright or with a mortgage, rented from a private or social landlord, or part-owned through shared ownership, where you buy a share and pay rent on the rest. Each has trade-offs, and for many young people getting started is hard, because buying and renting both usually need a deposit up front.
| Option | Advantages | Watch out for |
|---|---|---|
| Own (with a mortgage) | More control; you build up ownership over time | High upfront and ongoing costs |
| Rent | Flexibility; a lower upfront commitment | No ownership is built up; the rent can rise |
| Shared ownership | A smaller share to buy to get started | A mortgage plus rent, and ongoing costs |
- 'An asset always holds its value.' Assets can fall in value as well as rise. You keep the item, but it may be worth less than you paid for it.
- 'Renting is throwing money away.' Renting buys flexibility and a low upfront cost. Owning builds ownership but ties up a lot of money and carries costs of its own. Which suits you depends on your situation.
- 'If it is a consumable it must be a treat.' Not so. Everyday food is a consumable and an essential. Consumable just means it gets used up as you use it.
Key terms
- Discretionary spending
- Money spent on things you want rather than strictly need.
- Asset
- Something you own that has value and can be used over time; its value may rise or fall.
- Consumable
- Something that is used up as you use it.
- Homeowner
- Someone who owns their home, outright or with a mortgage.
- Tenant / Landlord
- The person who rents a home, and the person who owns and lets it.
- Estate / letting agent
- A business that helps buy and sell property (estate agent) or manage renting it out (letting agent).
- Guarantor
- Someone who agrees to pay, for example the rent, if you cannot.
- Tenancy agreement
- The contract between a tenant and a landlord setting out the terms.
Not examined
Check your understanding
- What is the difference between an asset and a consumable?
- Give one advantage and one disadvantage of renting rather than buying.
- Why can the same shop, say for food, be both essential and discretionary?
Show suggested answers
- An asset is something you own that has value and can be used over time (though its value may rise or fall); a consumable is used up as you use it.
- Advantage: flexibility and a lower upfront cost. Disadvantage: you build up no ownership and the rent can rise.
- Basic food is a need, so it is essential; extra treats are a choice, so they are discretionary. 'Consumable' only describes that the item gets used up.