Author Topic: discretionary expense budgeting  (Read 302 times)


  • 5 O'Clock Shadow
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discretionary expense budgeting
« on: January 11, 2019, 08:11:03 AM »
Hey all -

Happy New Year!

I was wondering what thoughts you have about discretionary expense budgeting. That is, do you ration a monthly sum that isn't assigned to an item; that you use to spend on wants and non-necessities.

How do you square this with your financial goals (i.e. financial independence and early retirement)? Since my financial independence journey began three months ago I've made a lot of gains, but I'd like to spend money on things (a new pair of kicks, clothes other than from the thrift shop) without feelings of guilt and resentment harboring over money that could have gone to savings or paying down credit card debt, for example.

I want to have a monthly discretionary expense budget, but then what's the point of F.I.?


  • Bristles
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Re: discretionary expense budgeting
« Reply #1 on: January 11, 2019, 08:16:44 AM »
I have four extra items in my budget that are not a regular monthly/annual bill. They are Trader Joe's, Costco, Household, & Vacation. Each one of those has their own annual budget allocation. I monitor the spending in each one throughout the year to make sure that we stay within reasonable margins.

Household can include anything from dog food to eating out to oil changes. It is the catchall for whatever is left.


  • Handlebar Stache
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Re: discretionary expense budgeting
« Reply #2 on: January 11, 2019, 10:57:49 AM »
Hi, and welcome.  I am going to start with your last question:  what's the point of FI?  The point is to allow you to support yourself, in a lifestyle that you find enjoyable and sustainable, without requiring a job.  The key for you is the second part of that:  what is the lifestyle you find enjoyable and sustainable?  If your future FIREd life would feel constrained and unhappy without the ability to go buy some new shoes or clothes periodically, then you need to work that into your plan and make sure your budget includes some extra discretionary money for those sorts of things.  Because what good is being FIREd if you're not living a satisfying life?

The real key is the plan.  Everyone can be FI in a ridiculously short period of time if you are willing to cut almost everything -- live in the cheapest apartment in a crappy neighborhood, no car, thrift shops and food banks/dollar stores/freecycle only, etc. etc. etc.  But most people aren't willing to cut their expenses that dramatically to be FI even sooner.  On the other end of the scale, there are people whose "happy" lives require so much stuff that they don't feel like they can ever retire, because there's always something else that they "need" to feel fulfilled.  Your quest is to figure out where on that scale you are. 

I recommend starting with this:  Time to FIRE is directly related to the percentage of your income that you live on.  So what is your target FIRE date in a reasonably-perfect world (i.e., not "tomorrow")?  Check the chart and see how much that would give you to live on.  Then look at your budget and see how close that is to what you'd need to do.  Then stop, have a beer, and chill -- because if you're like everyone else, there's a huge gap between the two, and your first inclination will be to panic or decide you can't do it.  ;-)  Then go pick away at both sides of the equation until you can get the two sides to meet in a way you're reasonably content with.

And then your job is to live, track, and adjust.  It is extremely common for people to cut back too much at the beginning, because like dieting or exercising or any other "good for you" plan, your initial enthusiam usually gets you a little carried away.  And then after a few months, you start to itch for the things you gave up, resent the sacrifices, and look for excuses to give up.  The key at this point is to recognize that maybe you've gone too far and figure out what to add back in that will scratch that itch -- without tossing the whole thing.  So you add a little back in, and then doublecheck how that fits your timeline -- ok, maybe that puts you at 25 years out instead of 20.  That's still better than "never," right?  And then maybe you add a little too much back in, and you realize after a few years that those extras aren't making you happy, and you decide to cut back.  Adjust, rinse, repeat.

IOW, the way you manage guilt-free discretionary spending is you build it into a long-term plan that you are happy with, rather than defining your goal as "achieving FIRE as soon as possible."  And you accept that you aren't going to get everything perfect first try -- that your priorities will change, that you will change -- and you just readjust your plan as those things happen.

FWIW, I am about 20 years further on than you, and I know exactly the feeling you describe, because I lived it -- that pull between feeling compelled to stash every penny away, but finally making enough money that I could afford nice things that I had never had.  Personally, I had to go through a season of "letting" myself buy nice things -- using my spendy DH as an excuse -- before I finally got to a place of realizing that most of the stuff I bought didn't actually make me happy long-term; I realized enjoyed the feeling of "OMG I can actually buy this now!" (which made me feel like I had come a long way from my Food Stamps childhood) more than I enjoyed the "thing" itself.  So I cut out a lot of that throwing-money-around spending that doesn't generate anything useful or truly enjoyable, like takeout and (some) fine dining and Target and general mall shopping and the like.  But I still spent money on those luxuries that actually do make me happy, like the StupidCar I bought a couple of years ago.*  I am at a place now where I am FI and could never work again and still maintain a perfectly lovely lifestyle; but, you know, my job is pretty enjoyable, and I can't really travel a lot with the kids still at home and DH still working anyway, so I choose to keep working and enjoy the hell out of my StupidCar.  And if circumstances change, then I can change my decision. 

*I should also note that I enjoy the StupidCar much more because I waited for it.  I have wanted it for, oh, 20+ years, but I waited until we had retirement savings and college savings in hand and I could pay cash.  You want to talk about guilt-free spending?  I have literally almost thrown up every time we wrote a big check -- buying our first house sent me running to the bathroom.  But I wrote the check for that car without a twinge, and with the biggest shit-eating grin you have ever seen.  Because I had waited and saved and knew for sure that I was finally at a place where I could treat myself without detracting from my higher priorities.


  • Stubble
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Re: discretionary expense budgeting
« Reply #3 on: January 11, 2019, 02:41:51 PM »
So I'm reading that as you feel guilty about wanting to spend the money and then feel resentment at feeling guilty? Since you're still in the early stages of this FIRE thing, I think you're still working out what you need to be happy.

I admit that we don't really budget. I track our expenses in Mint and I have goals for what I want to spend on categories, but if I go over I don't stress too much as long as we're on track for our larger goals. Like, we're at a point where we can both max our 401ks and our IRAs and any extra goes to the taxable account. I do try to keep us at a 60% or higher savings rate and I'd be unhappy if we dropped below that. And I have a goal this year of getting the grocery spend back under $300/mo, but that's the average - I don't care if it's $325 one month and $275 another.

We take 2 vacations, usually international, each year - I usually use airline miles for the flights, but we easily spend $4-5k per year on travel. Do we need to? No. But I love to travel and never got to do it when I was younger and broke, so I'm making up for that now. I will still want to travel when we FIRE, but I would be unhappy having to wait until then to do it. I'm okay with spending that money, because I want to be reasonably happy on the road to FIRE, instead of taking the death march approach.

So yeah, you sound like you need a monthly allowance for yourself, where you "allow" yourself to buy something guilt- and resentment-free.


  • Handlebar Stache
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Re: discretionary expense budgeting
« Reply #4 on: January 11, 2019, 07:30:40 PM »

I'm still working full time, but I don't budget discretionary spending except for a very small amount for entertainment.  My budget is more to show barebones spending and is laid out to show my take home pay and average monthly expenses that are necessary or minimal expenses I have, even if not every month.  I subtract all of these expenses from my take home pay, and that shows me how much I have left on average per month to save, use on unexpected expenses, and/or  to use for discretionary spending beyond the minimal entertainment budget.  I've been doing it this way for about 27 years, and it's worked well for me.  82% of my take home pay went to savings in 2019, and my discretionary spending didn't exceed my small entertainment budget item.  If I had wanted to take a one-off mini-vacation for a $1000 for example, I would have taken it from the leftover amount reducing my savings by that amount.  By not budgeting discretionary spending like that, I think I'm less likely to actually spend it, and it ends up in savings.  If I was pretty certain I would spend a minimum amount on travel most years, then I would add it as a budget item.  But, that isn't the case for me.

Looking ahead to FIRE, I plan to still use that budget for required expenses, but instead of starting with take home pay, I will be starting with my drawdown amount.  After subtracting average required expenses, the leftover amount will then be primarily for discretionary rather than saving.  This is where the huge shift is for me, as discretionary spending is currently a very small part of my overall spending, but it is projected to be over 60% of my FIRE spending depending on whether I relocate and the effect on my expenses.