Necessary expenses and discretionary expenses are two types of expenses that are often used to classify an individual’s spending habits.
Necessary expenses: Necessary expenses are those that are essential for maintaining a basic standard of living. They are required to meet basic needs such as shelter, food, healthcare, and personal care. These expenses are considered non-negotiable and are often difficult to cut back on. Examples are housing, food, transportation, healthcare and personal care.
Discretionary expenses: Discretionary expenses, on the other hand, are expenses that are not strictly necessary, but are chosen by the individual for personal enjoyment or convenience. These expenses can be adjusted or cut back on if necessary. Examples are entertainment, dining out, shopping, vacations and hobbies.
Recognising the difference between necessary and discretionary expenses can help an individual understand their spending habits and make informed decisions about where to allocate their money. Necessary expenses should be prioritised, while discretionary expenses can be reduced or eliminated if necessary.