I’ve spoken about this before: where people go off the rails on their household finances is when they do not have a small Rainy Day Fund for things like brake jobs and root canals AND when they over spend on discretionary items.
Today we’re talking about discretionary items. Clearly, the line between discretionary and non-discretionary is personal, right? Yes, to an extent. Here is my list of Full Discretionary categories when I work with clients and they are the following:
- Eating out, take out, snacks, any food not made and consumed in your kitchen.
- house items from stores like Bed, Bath, & Beyond, Target non-grocery, Container Store, Crate & Barrel, etc.
- Clothing, Make-up, Jewelry, hair care and skin care products that are not prescription, accessories.
- Children’s activities, toys, gear, diapers (yes…) – basically anything other than food, school and medical care for a child, AND occasional babysitting.
- Entertainment – booze, tickets to anything, subscriptions to anything (Hulu, etc.), itunes, new phone, new technology, art supplies, hobby supplies, books, music, a day of wine tasting, mani/pedi, massage.
- Taxis and Ubers or any other rideshare company including Car2Go unless used for work.
- Charity – no, I’m not heartless, but it is discretionary including church tithing, NPR, etc. any ongoing charitable giving
- Gifts – graduation, wedding, birthday, holidays.
- Fees and Fines – parking tickets, overdraft fees, library fines, plane ticket changes, etc.
How can fines, diapers, and children’s activities be discretionary? How can junior get into a great college if she is not on the debate team and equestrian team?
Here’s how: If you and your spouse suddenly lost your jobs or could not work, what would you stop doing? Probably everything on the list above. I can see your point on diapers, but here’s the deal friends, in lower income communities, kids are potty trained at 18 months Why? Because it’s cheaper!
I know your health depends on your $28 sport socks, but when the financial chips are down, I think you will make it on regular socks, you may even darn the old ones you have. That’s my point. Anything you would jettison in a financial storm is in fact discretionary.
What’s more is that if you move items from the discretionary category to the NON-discretionary category, it gives you license to SPEND on that category without guilt. It’s psychological!
If certain clothes or products are MUST-HAVES, you begin to feel entitled to them. Then, if the chips are down, you do not jettison them and you use yoru credit card for them. Then you are on the slippery slope.
Little Susie will still get into MIT without the equestrian team if her personal story includes the resilience of going through a financial catastrophe with her parents and learning how to prioritize necessary vs. non-necessary things in life. Your child will understand value, trade-offs, prioritizing and good decision-making. She cannot learn that anywhere else, but from you.
Note that gyms and therapy are not in my full discretionary list. The reason is that these would not go even if all income stopped, for many people. Maybe it’s the Y and not SoulCycle, but you will still workout if that’s a priority for you. For some people therapy is a necessity to keep going.
Know what is discretionary and what is not. That way, you can make good decisions about what stays and what goes when the chips are down AND, more importantly, you can decide which full discretionary items matter and when. You may trade-off those $28 socks, for a night out, because you know you only have a certain amount of discretionary dollars. When you are honestly making those trade-offs, yu are being honest with yourself about your finances and not feeling entitled.
You are not entitled to any and all full discretionary spending, you have to make trade-offs and decide. New shoes, or anniversary dinner? You cannot make that decision if you deem shoes to be required. Remember, you are the adult, you decide the priorities.