Essential vs discretionary expenses, Part I

[LOL!]

In another thread I wrote:

In our case the essentials would cover housing, utilities, autos, all insurance, food, clothes without having to move to a lower cost of living area. Discretionary would be eating out, pets, most travel, most entertainment, charity, hobbies, most gifts. Maybe we need a poll to see the ratio of essential to discretionary that folks typically have?

This made me curious to see what folks consider ESSENTIAL expenses and what folks consider DISCRETIONARY expenses. Once we sort of agree on that, then maybe we can have a poll about the ratio of our essential to discretionary expenses.

So I'll suggest that essential expenses are:

• Shelter - a place to live, a home. One could be mortgage-free or not. This would include property taxes, insurance, maintenance, but not remodelling. Some folks might need to pay for maids or yard work if they are feeble, but others need to do their own yard work and interior cleaning.
• Utilities - Electricity, natural gas, phone, water, sewer, internet (?), but not cable TV (!)
• Food - Eating at home, not much eating out. Nothing extravagant, but not red beans and rice every day either
• Transportation - a car or two, insurance, gasoline, maintenance, replacement
• Health care - doctor visits, prescriptions, eye glasses or contacts, regular dental care, insurance premiums, co-pays, etc. But not lasix, etc
• Clothing & shoes - as they wear out
• Taxes (just to be complete )

Everything else would be discretionary which would include (but not limited) to eating out, maids, gym memberships, travel, hobbies, pets, household furnishings, charity, etc.

I'm not sure where I would put "saving for retirement". I guess it is essential for accumulators, but not for decumulators. Maybe this can be discussed.

If you want to offer a sneak preview of your ratio of essential to discretionary, please go ahead. I think for us, it might be 4:1, so if we spend $40K on essential, then we spend $10K on discretionary.

 

[RunningBum]

There's a lot of discretion within those essential expenses. I can keep my heat at 72, or at 60. I can live in a mansion or a small apartment. I can have a new Lexus or a reliable 10 year old car.

 

[rescueme]

This made me curious to see what folks consider ESSENTIAL expenses and what folks consider DISCRETIONARY expenses.

DW/me faced this question as we prepared for retirement. During our accumulation years, we always had a budget and we always looked upon all categories equally. There was never anything that we desired to give up in order to live in a manner that we had become accustomed to.

This idea of essential/discretionary came up upon preparing for retirement, where writings and on-line forecast tools asked the question.

While we did the exercise and split out our expected expenses between the two classifications, in the end we had to ask ourselves the question of were we ready to live a "lesser life" in retirement by giving up some/all of those discretionary items (such as our pets, and reduction in travel)?

The answer quite simply was no. Our w*rking years net income satisfied all our wants, needs, and desires. Our planning for retirement goal was to have the same lifestyle, and the same required net income to support our desires.

All our expenses are essential. Maybe we're lucky not to have to make a choice, but that's just the way we did it...

 

[Katsmeow]

In the budgeting program I use for a time I tried to categorize expenses as between necessary and discretionary but it never quite worked mostly because most "necessary" expenses have a discretionary element to them. For most of the expenses you list there can be wide variations in how much is spent. Just think of clothing for example.

Also what is necessary for one person is totally not needed by another. I certainly think that internet is essential. I note you have household furnishings as discretionary. Really?

And I'm not sure why LASIK wouldn't be considered essentially. I had LASIK surgery 12 years ago. It has been without a doubt far more cost effective than the glasses/contacts I wore before.

Also there are individual situations. DH and I pay for gym membership to the Y. It ends up being cost effective for us. Some might say I could walk outside for free. But I'm severely allergic to many grasses and trees so I need to limit how much time I spend outdoor.

And then there are things that are discretionary but the individual wouldn't give up. As far as I'm concerned, live without pets is almost not worth living.

I do sometimes thing about what expenses could I cut down for a period of time, for example, in a down year. Some of them I could fairly easily cut down or give up for a year but to give up forever would get to the point where life was not pleasant.

One major essential expense for us is children. Even though DH is fully retired and I am ESR we do still have children at home.

Also some degree of travel is essential (going to funerals, visiting relatives for example).

 

[haha]

All our expenses are essential. Maybe we're lucky not to have to make a choice, but that's just the way we did it...

I think it would be hard to coldly triage which things are essential, and which not. If you still have children at home, this could turn into a very divisive exercise. And how do spouses divide their claims? Are the guy's hand made bamboo fly rods essential? What can she bargain against these?

Many couples here seem to be joined at the hip, which would definitely make all this easier. It may in fact be that except for the very wealthy this unusually harmonious spousal relationship is a sine qua non for early retirement.

In my case, deciding what is "very desireable", "desireable", or "I don't really care" or "I'd have to be insane to spend my money on that"- is not really hard. It got a lot easier when my children were up and out, my wife was gone, and my dog was dead. Not better, in fact likely not as good, just easier.

I don't need any lists, my appetites and day to day satisfaction is a good enough guide. Also I do not beleve in accumulation/decumulation as goes the popular jargon of today.

Continuing overall increase is good, sustained decrease is bad. Keeps it simple.

Ha

 

[JmfromTx]

My discretionary spending has always been higher. I don't expect it to change now. I do have a list of things in my head that I can do without and not miss a beat if the unexpected happens. Ratio wise I would estimate 2:1.

 

[CyclingInvestor]

If I looked at expenses as you do, I would say about 50% essential - 50% discretionary (52, retired, paid off house).

I look at them more as an ordered list with some bleeding between levels (food, shelter, minimal clothing, health care, utilities, pets, internet, better clothing, . . . travel, Netflix, eating out, expensive wine, car, dating, buying more electronics I dont need), where I can afford everything up to a particular level. While I was working, saving, and paying a mortgage, I was usually up to the travel level, with some forays up into the higher levels of the list. Now I am further up, usually around the 'expensive wine' level.

 

[Midpack]

We have been actively reducing our essential expenses for years and plan to continue. When/if returns are kind to us in retirement, we will spend more on discretionary. We include all the discretionary categories shown below in our current spending (and hope to continue).


Pretty much the same, and following your format we consider essential expenses to include:

• Shelter - a place to live, a home. This would include property taxes, insurance, maintenance, but not remodelling. [We are planning to move and downsize to 1300-1500 sf because we'd be happy to have a smaller home, and to minimize essential expenses in retirement]
• Utilities - Electricity, natural gas, phone, water, sewer. [We already actively conserve all these]
• Food - Eating at home, not eating out.
• Transportation - 1st car, insurance, gasoline, maintenance.
• Health care - doctor visits, prescriptions, eye glasses or contacts, regular dental care, insurance premiums, co-pays, etc. But not lasix, etc
• Clothing & shoes - as they wear out
• Basic personal care (haircuts, etc.)
• Pets (and only the best for her)
• Annual accruals (car 1, periodic home repairs/roof, furnace, AC, appliances, etc.)
• Taxes (just to be complete )

Everything else would be discretionary

• Shelter - lawn care, remodeling, discretionary furniture replacement
• Utilities - Internet, television
• Food - Better groceries, eating out
• Entertainment - Movies, plays, concerts, etc.
• Transportation - 2nd car, insurance, gasoline, maintenance.
• Health care - elective
• Clothing & shoes - beyond as they wear out
• Discretionary personal care (fitness clubs, massage, etc.)
• Annual accruals (car 2, PC's, TV's, furniture, vacations, etc.)
• Gifts, charity (unfortunately)
• Additional taxes

 

[haha]

If I looked at expenses as you do, I would say about 50% essential - 50% discretionary (52, retired, paid off house).

I look at them more as an ordered list with some bleeding between levels (food, shelter, minimal clothing, health care, utilities, pets, better clothing, . . . travel, Netflix, eating out, expensive wine, dating, buying more electronics I dont need), where I can afford everything up to a particular level. While I was working, saving, and paying a mortgage, I was usually up to the travel level, with some forays up into the higher levels of the list. Now I am further up, usually around the 'expensive wine' level.

Does this mean that dating is still beyond your budget? Yowseah! I recommend Charles Shaw wine and an occasional woman.

Ha

 

[rescueme]

Many couples here seem to be joined at the hip...

Absoutely. If we were not, we would not be married ...

Of course, you have those on the forum (not saying who they are, but they reside in the "Big Easy") that may not be married, but still acting sort of like they are ... (now, if only I could get my DW to live in another house...)

 

[travelover]

I haven't seen any mention of beer, though it may have been buried in other category.

Essential.

 

[Alan]

Much the same here also, we consider essential expenses to include the following. Main difference is that we would rather give up internet access than Y membership as we spend so much time there and attend so many classes; we consider it essential to our good health. I also put life and LTC insurance into discretionary. We only have 1 car so don't have a category for 2nd car.


Shelter - a place to live, a home. We live in an apartment now and would downsize to a single bedroom if we had to.

• Utilities - Electricity, natural gas, phone, water, sewer. We already actively conserve all these.
• Food - Eating at home, not eating out.
• Transportation - 1 car, insurance, gasoline, maintenance.
• Health care - doctor visits, prescriptions, eye glasses or contacts, regular dental care, insurance premiums, co-pays, etc. But not lasix, etc
• YMCA membership
• Clothing & shoes - as they wear out
• Basic personal care (haircuts, etc.)
• Annual accruals (1 car)
• Taxes (just to be complete )

Everything else would be discretionary

• Shelter - lawn care, remodeling, discretionary furniture replacement
• Utilities - Internet, television
• Food - Better groceries, eating out
• Entertainment - Beer, wine, movies, plays, concerts, etc.
• Health care - elective
• Clothing & shoes - beyond as they wear out
• Discretionary personal care (massage, etc.)
• Annual accruals (car 2, PC's, TV's, furniture, vacations, etc.)
• Gifts, charity (unfortunately)
• Insurance - Life, LTC.
• Additional taxes

 

[Alan]

I haven't seen any mention of beer, though it may have been buried in other category.

Essential.

see entertainment, and we have done without beer and wine in our past when we had to get through tough times.

 

[donheff]

If I looked at expenses as you do, I would say about 50% essential - 50% discretionary (52, retired, paid off house).

I'm in this neighborhood. I could pare way back if a crisis hit but I would prefer not to. I think the initial list is fairly accurate.

 

[CyclingInvestor]

Does this mean that dating is still beyond your budget? Yowseah! I recommend Charles Shaw wine and an occasional woman.

Ha

I can afford the financial cost, but the other costs (for the most part) add up to too much.

Especially when my priorities become clear.

 

[haha]

Especially when my priorities become clear.

hahahaha!!!

 

[Htown Harry]

I recommend Charles Shaw wine and an occasional woman.

Ha

Note to moderators: we need a sticky thread for classic ER.org quotes to be posted.

 

[travelover]

see entertainment, and we have done without beer and wine in our past when we had to get through tough times.

Now I'm really confused. I thought beer was especially essential in tough times.

 

[haha]

Note to moderators: we need a sticky thread for classic ER.org quotes to be posted.

If so, put Cycling's quip and photo right there too!

Ha

 

[Ally]

Before retirement, we could pare down to as low as 25% for essentials in a difficult time, and that would include not contributing the money we do for retirement. If we were retired, we would budget 50% for essentials, the rest for nonessentials and continued savings. But we consider pet expenses as essential to our mental and physical health. We are dyed in the wool pet lovers. That is the one area others are classifying as non, that I would change.

 

[FIREd]

Given our current situation, we consider:

Essential expenses:
Shelter: property taxes, insurance, repairs, termite control
Food: groceries (non organic/gourmet food, no alcoholic beverages).
Autos (2): replacement, repairs, maintenance, insurance, gas, taxes
Pets
Health care: doctor visits, prescriptions, eye glasses or contacts, regular dental care, insurance premiums, co-pays, etc
Utilities: cell phones (prepaid voice), water & electric, sewer, internet
Basic personal care (hair cuts)
Clothing: basic, as they wear out.

Discretionary expenses:
Shelter: improvements/remodeling, pest control, cleaning services, security.
Food: eating out, wine/liquors, organic/gourmet food
Gifts
Charitable donations
Entertainment
Utilities: cell phones (iphone plans), cable TV, landline phone.
Furnishings
Travel/Vacations
Most Electronics beyond basic computer/TV
Advanced personal care (massages, etc...)
And everything else not mentioned.

Based on that, we are close to 50% essentials / 50% discretionary.

 

[Danmar]

Obviously there are gradations of the two. During the financial crisis we cut back on travel. If things had stayed bad we would have reduced entertainment, clothing, gifts, donatons. If things had gotten even worse we might have sold a property(for a very bad price) or cut travel even more.

 

[Midpack]

Before retirement, we could pare down to as low as 25% for essentials in a difficult time, and that would include not contributing the money we do for retirement. If we were retired, we would budget 50% for essentials, the rest for nonessentials and continued savings. But we consider pet expenses as essential to our mental and physical health. We are dyed in the wool pet lovers. That is the one area others are classifying as non, that I would change.

I showed pets as essential, and they're not very expensive anyway.

 

[ziggy29]

Essential -- the stuff that's rapidly increasing in price

Discretionary -- the stuff that's falling in price and keeping the CPI a lot lower than many people are feeling

 

[LOL!]

I put pets in discretionary because I know more than one person who said "Pets are essential", but when push came to shove, they gave up their pets in order to make the mortgage payment and to eat.

Nevertheless, as a pet owner myself, I understand where other pet owners are coming from.