How to differentiate between essential and non-essential expenses
Do you really need everything you spend your money on? We’re guessing not. So, we’re here to help you learn how to differentiate between essential and non-essential expenses.
The names of the two are pretty self-explanatory. While essential expenses are every expense related to living, non-essential expenses are usually the expenses that you don’t necessarily need. For example, expenses such as rent, mortgage, utilities, groceries, or medication are essential ones that you need to pay for living. However, things such as clothes, shoes, makeup, video games, gym membership, and, yes, even the Netflix subscription, are non-essentials.
So, essential expenses are, well, essential. You have to pay for them no matter what because you either need them or are a financial responsibility. As for non-essential ones, they often arise from wants, not needs.
Now, here’s the deal: these expenses that you call necessary might be blowing your budget. So, here are a few tips to help you prioritize your expenses and trim your budget.
Be a ruthless budgeter
If you’ve never had a budget before, it’s about time you create one. When you want to learn how to manage your money the smart way, you must have a clear plan for spending your income.
So, how do you create a budget? Start by totalling up your income. Next, list and calculate your total essential expenses. However, make sure that your necessary costs are indeed the ones that you MUST pay for.
Once you’re done totalling how much you need to pay for your essential expenses, any money left can be put toward an emergency account, because you never know when the unexpected happens. As for non-essential payments, the only moment you can afford them is after you pay essential ones and save a small amount of your income.
You can, for example, use the 50-30-20 budgeting rule, where 50% of your income goes to your needs, 20% of it goes to saving, and only 30% of it goes to your wants.
Cut down costs
So, if you can’t give up a non-essential, at least try to find a way to cut its cost down.
Take broadband, for example. Having Internet connection at home is essential, especially if you’re working remotely, but getting a great broadband deal wouldn’t hurt to cut down your overall monthly costs.
Or, another example, your monthly Netflix subscription, which is a BIG non-essential expense but we all get why you can’t get rid of it. However, you could ask a couple of your friends or family members to share the account and the subscription costs.
There are many both non- and essential expenses that you can actually cut down if you are committed to it.
Don’t borrow money for non-essential expenses
More debt will only make things more difficult for you, financially speaking. Yet, sometimes, unexpected expenses appear and when you MUST pay for them quickly, borrowing money is the only option sometimes.
However, think twice on whether or not that is an essential expense before you get bad debt. Plus, when you do borrow money, always remember to read the fine print carefully because interest rates or repayment terms may be less favourable then you assume.
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