Discretionary Spending
Non-essential expenditures on wants rather than needs — such as dining out, entertainment, travel, and hobbies — that can be reduced when budgets are tight.
What is Discretionary Spending?
Discretionary spending refers to expenditures that are optional and can be adjusted based on financial circumstances, contrasting with non-discretionary (fixed or necessary) expenses like rent, groceries, utilities, and insurance. In personal finance, common discretionary categories include restaurants and takeout, entertainment and streaming services, travel and vacations, clothing beyond basic needs, gym memberships, and hobbies. In government finance, discretionary spending refers to appropriations that Congress authorizes annually (defense, education, transportation), as opposed to mandatory spending (Social Security, Medicare) which flows automatically by law. From a budgeting perspective, identifying and managing discretionary spending is often the most effective lever for increasing savings rates, since fixed expenses are harder to reduce quickly. The 50/30/20 budget rule classifies 30% of after-tax income as the target for discretionary 'wants.'
Example
A household earns $80,000 after taxes. Fixed non-discretionary expenses (rent $1,500, car payment $400, groceries $600, insurance $300) total $2,800/month. Discretionary spending includes dining out ($400), streaming services ($50), gym ($60), clothing ($200), weekend trips ($300) — totaling $1,010/month. When the household aims to save an extra $500/month for a house down payment, they cut discretionary spending rather than fixed expenses, as those are more difficult to reduce.
Source: CFPB — Making a Budget