What are essential expenses?

Essential expenses (sometimes called non-discretionary spending) are the costs of meeting your fundamental life needs. Things like housing, food, water, light, warmth, power, clothing, etc. The stuff you can’t reasonably do without.

Non-essential expenses (discretionary spending) are added comforts, luxuries, hobbies, and voluntary spending that may contribute to your quality of life but aren’t strictly necessary. Things like cashmere sweaters and Pilates classes.

Straightforward, right?

Well, it can be. Until we move past the bare bones basics to look at other life necessities. Such as lotion and sunscreen.

Plan to stroll around looking like Ashy Larry or Larry the Lobster? If not, better include basic toiletries in your essential expense budget. But does that make your favourite glycolic acid glow cream and Vitamin-C enriched sunscreen serum essential?

Haha, no.

Basic life needs are essential. Upgrades become discretionary spending, even if you consider those things to be personal staples!

Now another complication. Not all essential expenses work with the same personal financial management methods. Monthly housing costs are great for a simple budgeting spreadsheet, but seasonal car maintenance are better handled with a sinking fund or other variable strategy.

We’re going to break all of this down.

1. What essential expenses are.
2. The difference between essential expenses vs discretionary spending.
3. Examples of essential expenses.
4. Finding out what your essential expenses are.
5. Managing your essential expenses.

Ready? Let’s go.

What are essential expenses?

We covered the gist of it, but one more time, for good measure. Your essential expenses are the costs of your necessities of life.

Your needs – not your wants. Most fall under basic budget categories like housing, food, utilities, and transportation. Yours could include things like education, childcare, and other life needs.

Essential Expenses can be Regular or Occasional

Your essential expenses can occur on any kind of schedule – or none at all. Monthly essential expenses are typical, but you can also have weekly, quarterly, yearly, or sporadic costs.

We can refer to this as fixed, variable, or semi-variable. (The proper financial terms.)

• Fixed expenses occur on a regular basis and a specific cost. Rent is an essential fixed expense, since it costs a certain amount every month. A monthly mortgage payment can be fixed, if it uses a stable interest rate.
• Variable expenses can be on a fluctuating basis, at varying costs, or both. Unexpected car repairs is a common variable essential expense. Property taxes could be variable, if your municipality changes the rate every year.
• Semi-variable expenses can be both fixed and variable. Your medical expenses might be semi-variable, if you have fixed insurance but variable co-payments. (In this case, you should budget for the regular payments and save a little extra for unexpected bills.)

Planning for regular, periodic, and unexpected essential expenses is important for your financial stability.

Ever forget a yearly bill? Or underestimate an upcoming fee? You can stay on top of things by defining your essential expenses, categorizing them, and using the right budgeting system.

Know the difference between Essential and Discretionary Expenses

Lines can get blurred between essential and discretionary spending.

That’s because some expenses can be either essential or non-essential, making it hard to tell the difference. Sometimes your preferred standard of living is more than you can afford. And things that are discretionary for other people might be legitimate essentials for you, or vice versa.

Running water is essential. Gerolsteiner at lunch isn’t.

Certified Organic oats might be discretionary. Unless you’re gluten-sensitive and can’t tolerate generic options.

Understanding which of your expenses are essential vs discretionary helps clarify your spending and financial obligations.

Note: This doesn’t mean you have to give up your faves. Just get an honest picture of what your living requirements are and what’s optional.

A List of Essential Expenses and Budget Categories

Here are examples of essential expenses broken down by budget category:

• Housing: Rent or mortgage payments, homeowners or renters insurance, property taxes.
• Food: Groceries (not dining out or luxury).
• Utilities: Electricity, water, gas, internet, phone.
• Essential Household Staples: Cleaning supplies and sanitary products.
• Personal Care: Soap, toothpaste, deodorant, lotion, shampoo etc.
• Transportation: Vehicle expenses (gas, car payments, insurance, maintenance), Public transit (tickets, pepper spray), Alternative methods (bike maintenance, rash guards, higher laundry bills cus’ you’re always sweaty😅).
• Healthcare: Insurance premiums, prescription medications, dental, vision, co-payments, therapy, and other out-of-pocket essential medical expenses.
• Debt Payments: Student loans, credit cards, personal loans, etc. (Calculate the minimums, even if you choose to pay more.)
• Childcare and Education: School fees, supplies, day care costs (if applicable), tutors (if within budget and essential to you), other costs.
• Basic Clothing: Work attire or seasonal necessities (e.g., winter coat).
• Pet Care: food and medical necessities – pet insurance, emergency vet, meds, etc.

Use this list to start figuring out what yours are. Keep in mind that essential expenses are both universal and personal. Yours will reflect basic human needs and your individual lifestyle, income, and cost of living.

Drive hours to work? Your essential transportation costs would include gas, vehicle insurance, and maintenance.
Prefer public transit and a bike? Yours might include passes, tires, chains, tubes, and annual tune-ups.

Do you know what your essential expenses are?

You gotta know what, when, and how much you have to pay. Concrete details, not guesses. This is fundamental for good personal financial management.

It’s how you can get those bills paid on time and raise your credit score. Cover larger payments without going into the red. Know if you can splurge at brunch or stick with a more affordable entrée.

Here’s a mini pop quiz to help you reflect.

Defining your essential expenses helps with accurate budgeting, ensures solid financial management, and puts you on the path to financial freedom.

Use the list we gave you to help figure out what yours are. You can take two approaches:

Method 1 is fast, but sloppy. It’s a good way to get started but you might miss things. Method 2 is much more detailed but can take longer. However, you can also use apps to automatically categorize your spending.👍

It’s best to combine the two. Jot down your essentials for each budget category, then do a detailed analysis for each bank account, credit, or debit card. Or use an app to automatically analyse your accounts then manually look through it and write down anything it missed.

Did you notice that each method includes regular reviews? That’s a good money habit to develop. You can do this daily, weekly, monthly, quarterly, etc.
Daily money checks are great for finding unapproved charges. Weekly and monthly ones help you stay on track. Quarterly and yearly reviews can fit into your long-term financial goal planning.