MSE’s Academy of Money
MSE’s Academy of Money

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

MSE’s Academy of Money

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.

The image is a photo of a young couple in a supermarket looking at a long receipt. The man is using the calculator function on his mobile ‘phone to check the receipt.
Figure 7 Did we really spend that much?

Activity 3 Can’t live without?

Timing: Allow approximately 10 minutes for this activity

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
To use this interactive functionality a free OU account is required. Sign in or register.
iPad/tablet
To use this interactive functionality a free OU account is required. Sign in or register.
Gym membership
To use this interactive functionality a free OU account is required. Sign in or register.
Meal out with friends each week
To use this interactive functionality a free OU account is required. Sign in or register.
Sky TV
To use this interactive functionality a free OU account is required. Sign in or register.
A holiday or break away
To use this interactive functionality a free OU account is required. Sign in or register.
Christmas presents for friends
To use this interactive functionality a free OU account is required. Sign in or register.
Insurance for your phone
To use this interactive functionality a free OU account is required. Sign in or register.
Daily coffee from a coffee shop
To use this interactive functionality a free OU account is required. Sign in or register.
Words: 0
Interactive feature not available in single page view (see it in standard view).

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.

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.
AOM_1

Take your learning further371

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses372.

If you are new to university level study, we offer two introductory routes to our qualifications. Find out Where to take your learning next?373 You could either choose to start with an Access courses374or an open box module, which allows you to count your previous learning towards an Open University qualification.

Not ready for University study then browse over 1000 free courses on OpenLearn375 and sign up to our newsletter376 to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371