Discretionary Income
Written by R. A. Stewart
If you have taken a good look at your bank statements you will notice payments such as rates, power, and groceries. These are fixed expenses and are necessary. Then there will be payments for such things as entertainment, hobbies, and the like. These are things which you can do without.
Discretionary spending money is what you have available to spend beyond your necessary expenses. Expenses that you need to pay every month. If these are not paid there will be consequences such as a financial penalty. In the case of rates this is usually an extra 10% if the account is not paid by the due date.
Discretionary spending is what you have control over. Food is a necessary expense but going out for a meal in a restaurant is classed as discretionary spending.
If your income drops your discretionary spending is affected. You have less money to spend on whatever it is you love to spend your money on.
Do you have more discretionary spending money if your income rises? That all depends if your costs go up. During the current cost of living crisis as the economy is often called, an increase of income does not always keep pace with rising costs which means there is less discretionary spending money available.
It is the costs of fuel, power, insurance, and rates which ordinary people cannot control which are biting. Food and groceries are necessities but at least people have some measure of control on what to spend their money on in the supermarket.
Investing your Discretionary spending money
It is not always the amount you receive in your pay packet but what you do with it after you receive it which determines your financial outcome. What separates a good money manager from a bad one is that a good money manager will save and invest some of their discretionary spending money with their future in mind while a bad money money will spend everything without any thought for the future.
It takes vision to make provision for the future. Making plans for the future is a responsible and mature thing to do. There are consequences for spending everything. One is that when an unexpected bill arrives there is no money in the kitty to pay for it.
If you do not have an emergency fund then using part of your discretionary spending money to start one is a good idea.
There are plenty of investing apps about. These can be used as a way to invest on a shoe string. Getting involved in the share market helps to build your financial literacy.
If you have more discretionary spending money available and want to be a bit more adventurous then investing in crypto-currency may be your cup of tea if you are aware of the risks and don’t mind taking risks. After all, if you spent your discretionary money on a restaurant meal it will be gone in one night. You might lose it on Bitcoin so what is the difference?
When investing your money ask the question, “How will this affect my lifestyle if I lost this money?”
If you were saving for a new car and invested the money you set aside for a new car in the crypto-currency and lost it all, the result will be that you will be unable to purchase your new car. The same thing applies to whatever you are saving for, an overseas trip, education, or house deposit. Investing requires common sense and diligence.
About this article
This article is of the experience of the writer and is not financial advice. It may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.
Read my other articles on www.robertastewart.com
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Photo: Lake Mapouriki near Franz Josef Glacier, West Coast, New Zealand
