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April 01, 2012


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Excellent post. The discretionary and non-discretionary budget distinction is critical for peace of mind and flexibility. To me, "rules of thumb" are a waste of time. Everyone should analyze and understand their unique circumstances, including their personal inflation rate as the aggregate economic number most likely isn't representative of what each person is experiencing. For forecasting, planning, tracking, adjusting and staying on top of actual events, the spreadsheet is invaluable.


The "cushion" part is IMHO the most important part of one's ER budget. This enables you to be able to withstand at least some small, unforeseen expenses which may arise.

In my own case, I had to buy a new PC back in January. It cost me about $430 which was not a problem because the cushion I had couls already cover such expenses.

I did not, however, split my budget into discretionary versus non-discretionary expenses. I don't lead a very extravagant lifestyle (most months I do not even use my credit card) so there really isn't much I could cut. My monthly expenses are rather low anyway.

I do split my budget into medical versus non-medical for the purpose of assigning inflation rates, as my individual health insurance premiums are the ones which could cause me the most trouble long-term. I did switch to more of a bare-bones policy a year ago which has helped a lot.

Robin Kirk

You're right, classifying the expenses if it's discretionary or not can differ in every individual, depending on his/her needs. For example, optional expenses for me would be my relaxation costs (movies, gym, gadgets) while non-optional ones include my basic needs like food and rent. Although it's not mandatory to classify them, it helped me to track down further where I spend my income.

Carlos Silva

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