They are also not essential in the purest sense of the term since, while they can help your business grow, they are likely not essential in the strictest sense of the term. But these are not fixed costs the way that payroll or taxes are. So too could be spending money on a nice office, since that may be needed to attract talent to your business from a hiring perspective. In many cases, you can argue that certain costs are essential to grow a business and therefore aren’t totally discretionary. This kind of nuance has to be considered when it comes to discretionary spending. In other words, marketing might technically be discretionary (your business can get through the next week without it), but it is necessary to spend money on if you want your business to thrive in the future. But you also do have to find some way of getting word out about your business in order for it to grow. For example, a fancy ad talking up your latest product could be read as a vanity play on your part. You might take issue with the idea that certain parts of a business are considered “nice to haves” and not essential. Discretionary Spending Does NOT Mean Non-Essential These expenses are typically linked with improving the reputation of a company with its employees and customers alike: whether that’s investing in perks to attract employees or spreading awareness among customers. In good times, there is likely to be more discretionary budget available, while these costs may be curtailed during challenging periods since they can be most easily cut. On the other hand, a physical brick-and-mortar store must pay rent for the premises that it operates from, just as it must pay the salaries of the staff employed by the company or certain types of business insurance.ĭiscretionary expenses are paid for using discretionary income - referring to whatever money is left once essential costs are covered. A TV advertising campaign during a high profile show could be a great way of bringing in new users to your business, but chances are that it’s not an expense that’s considered absolutely essential for your business to continue. You might want the first, but you have to have the second.īusinesses have discretionary and essential expenses as well. The second, since humans require food and heat to live, most certainly is. The first of these, while undoubtedly nice, is not an essential item. Don’t Let Discretionary Spend Get Out of Control What is Discretionary Spend?Īt the highest level, the differentiator between discretionary expenses and essential expenses is whether the expense is a “nice to have” or a “must have.”Īn everyday discretionary spending definition might be the difference between buying the fully kitted out Tesla of your dreams and buying groceries or paying your electricity bill.
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