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Monday, April 12, 2010

$ense & $ensibility Monday: Budgeting Basics, Part Deux

Discretionary Dalliances
In my last post, I talked about budgeting basics and necessity spending. This week we’ll be looking at discretionary spending so we can really get an idea of where our money is going.

Discretionary Expenses
Unlike necessities, these expenses are not things you need to be spending money on - though sometimes we might feel that we do! Discretionary spending includes things such as clothing/accessories, toiletries and beauty products, subscriptions to glossies, and eating out/ordering in. Basically, anything that I didn’t cover in the list of necessity spending categories is a discretionary expense.

Discretionary expenses can be further broken down into two categories:
Day-to-day discretionary expenses – these are items you buy about once a week, e.g. eating out, coffee runs, accessories, beauty products, and entertainment (movies, magazines, books, smart phone apps, drinks).
Incidental discretionary expenses – these are things you buy infrequently, usually only once per month, e.g. gym memberships, cable and internet, haircuts, vacations, and gifts.

Discretionary Diary
This week I’d like you to keep a diary of your day-to-day discretionary expenses. Starting today, write down everything you spend money on that is not a necessity. And no, that soy-quad-latte is not a necessity! At the end of the week, add it all up. The purpose of this exercise is to see where exactly your money is going and make sure you aren’t spending more than you are taking in.

Even if you know you’re not spending beyond your limits, it’s still important to see exactly what you’re spending money on and why. It’s usually quite an eye-opening experience to see how much we spend on trivial things in a week. Also, if you’re looking to save more, make an investment, or make a down payment, where is that money going to come from? Knowing what you’re spending money on lets you know what you can cut back on.

Just remember, spending on things you don’t need adds up quickly:
$30 per week equals
$120 per month
$1,440 per year
$7,200 over 5 years

Is there somewhere else you’d rather be putting that $1,440 per year? It’s never too late to take control of your finances.

Katharine Albritton is an art market specialist and writer. Procrastinate with her at The Fine Taste Emporium and follow her on twitter.

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