The term discretionary expense means non-essential expenses which one makes during a period for the operation of a home or a business. These are optional expenses that one makes normally during a month. These spending are done basis wants rather than needs. For instance, the expenses incurred while going out for diner, buying luxury items for home decor, going on a trip, etc. comes under non-essential or discretionary expenses. Unlike for essential needs, these expenses vary hugely during a month, depending on the type of purchase.
Here are some of the examples related to essential expenses which one has to make during a month and are necessary. For instance, paying rent, salaries to employees if you are a businessperson, insurance premium, utility bills, etc. You are obliged to make these payments each month, you cannot do away with such payments as you might have to pay such bills along with fine or additional penalty charges the very next month.
The need for understanding discretionary expenses
Generally, in case of a job loss or a pay cut when there is a tough time going on and you have to meet out your routine expenses by cutting back on certain expenditures, you have to then first identify the discretionary expense. Therefore, by tracking discretionary expenses, you get to know how you can save money in times of financial emergencies.
For an organization, these expenses are usually linked with improving a company’s financial health.
Besides, it is also important to note that discretionary expenses vary depending on the business or person. For instance, buying a new vehicle may be considered a want for one person, but on the other hand, it may be considered as an essential need for someone who has to daily commute to an office, places and has no other option.
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