8 Turning to the spending side of the budget
Now you’ll look at the spending side of your budget. There are different categories of spending – some expenses will be things like bills, where we have to pay them, but there are also those items of spending where we have complete discretion, like choosing whether we buy a book or leave it on the shelf.
Understanding the difference lets us make good spending decisions and, when necessary, rein our spending in.
Activity 3 Can’t live without?
For most of us, our spending is sometimes on essential things and sometimes on fun items. But what about the things that are neither of these?
How would you classify the items of expenditure listed below? Which of these categories best describes each item for you?
- an essential
- a desirable (not absolutely essential but you’d be hard pressed to go without).
- a non-essential
Clearly when prioritising spending, essential items come first before desirable and then non-essential expenditure.
Keep a record of the categories you’ve chosen. You might find it interesting to take a look back at these at the end of the session.
| Category | Essential, non-essential or desirable? |
|---|---|
| Mobile phone | |
| iPad/tablet | |
| Gym membership | |
| Meal out with friends each week | |
| Sky TV | |
| A holiday or break away | |
| Christmas presents for friends | |
| Insurance for your phone | |
| Daily coffee from a coffee shop |
Answer
Some suggested answers are given below, but really classifying the items of spending is a personal matter.
Most people view a mobile phone as an essential. Insuring your phone could be an essential cost too – but you might find that this is already covered by your house contents insurance, or you might want to just put money aside to buy a new one if yours is lost or stolen.
Most people would view having a break away, even if not a full holiday, as being close to an essential, though your opinion is likely to depend on whether your income makes a holiday possible.
The other choices will vary from one person to another depending on what’s important to them.
What’s the reason for linking your spending to what is essential, and what is important to you but not essential? It’s so that you develop clear thinking about what’s important to you, and what you can cut out of your spending if your income isn’t high enough to afford everything you’d like it to.
When you have to make cutbacks to your spending, start with the clear non-essentials. And then, if necessary, target those things that are not really essential – even though it’s difficult for you to do without them. Sometimes managing money means making tough choices.
Certainly the current cost-of-living crisis is making it more important to understanding what are essentials and what are not.
You may have come up with something like the following:
| Category | Essential, non-essential or desirable? |
|---|---|
| Mobile phone | Essential! |
| iPad/tablet | Non-essential |
| Gym membership | Non-essential or perhaps desirable |
| Meal out with friends each week | Non-essential |
| Sky TV | Non-essential – although sports addicts and film buffs may disagree! |
| A holiday or break away | Desirable? Perhaps even essential given the relaxation and enjoyment these can offer. |
| Christmas presents for friends | Desirable? |
| Insurance for your phone | Essential? Perhaps not! You looked at this in Session 1. |
| Daily coffee from a coffee shop | Non-essential or perhaps desirable. |