Updated on 08.30.10

What’s Necessary? What’s Not Necessary?

Trent Hamm

Naomi is trying to get a good picture of her actual spending and is using a very good process to get there. She’s run into a bit of a snag, though.

I have reached a month of collecting receipts and preparing to organise it all in an Excel spreadsheet. Categorising by what type of expense will not be the difficult part for me, however deciding weather it was a ‘necessary’ spend is. I’m finding too many grey areas. For example; it was necessary to eat lunch but instead of having an at home sandwhich, i grabbed one on the go. Or, i needed some new clothes for work and brought a nicer dress than was necessary. Maybe I am overthinking such a simple exercise a little too much, but I would appreciate any direction you could provide.

pf101This is a classic problem that people run into when they’re first getting a grip on their finances. What exactly constitutes a necessary expense? If you don’t buy the low-end garbage bags and instead buy the ones that Consumer Reports calls a “best buy,” is the difference in cost a necessary expense? If you’re caught in traffic and can’t stop at home for dinner before an evening meeting, so you stop at a fast food restaurant, is that a necessary expense?

I can certainly give you my opinion on a lot of such buying situations, but the truth of the matter is that it’s my opinion. I’d call the garbage bags a necessary expense. I’d call the fast food an unnecessary expense, a cost that results from poor planning. And on and on and on…

Here’s the truth. Every single one of us is going to spend money on something that we view as necessary and that others view as unnecessary. Almost all of us are going to spend at least some money on things that we view as unnecessary upon later reflection.

What matters isn’t that we eliminate all unnecessary spending from our budget. That’s impossible. It’s the equivalent of eating nothing but lettuce for a diet – eventually, you’ll either wither or fail.

What matters is that we get a grip on our unnecessary spending, however we define it.

I usually encourage people to be pretty tight with their definition of what a necessary expense is, because the real value in budgeting is to figure out where all of your unnecessary expenses are going. What areas are you dumping money into that, with some forethought and changes in routines, you could improve?

Here’s an example of what I mean. Let’s say you’ve decided to count lunches eaten out as an unnecessary expense. You make a category in your accounting of your spending called “lunches eaten out.” At the end of a month’s worth of receipts, you look at that total. $250? What?

You can reclaim that $250 (or at least most of it) by simply changing one behavior. Stock your desk with the materials for some lunches on the fly, for one, and then get in the routine of brown-bagging it. If things don’t work out with the brown bagging for a day, you have some food in your desk as a backup. Boom! Suddenly, you’re not dumping that money into eating out all the time.

That’s how budgeting is supposed to work. You group all of your expenses into categories and look for ways to sharply cut some of the areas of unnecessary spending (like the lunches) while also looking for ways to reduce the costs in necessary areas (energy efficiency, for example). It is much easier to identify ways to cut your spending if you’re looking at the exact dollar amounts you’re spending in a specific area and are focused on that specific area.

In other words, don’t focus so much on what’s necessary and what’s unnecessary, at least not at first. Just try to group things into piles that make sense to you. Budgeting books often offer suggestions of categories, but don’t be afraid to go beyond them and have categories like “lunches eaten out” or “comic books” or “makeup” or “video games.”

Then, when you’ve got those specific categories and how much you spent in each of them each month, focus on those categories one at a time and ask yourself, “How much of this is necessary? How much can I trim from this?” Different people will come up with different answers here, but the more you cut without significantly altering your standard of living, the easier it will be to find financial freedom.

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  1. Carol@inthetrenches says:

    Good article. I would consider anything that is food, clothing, shelter, or medical as a necessary expense BUT once the total is arrived at begin looking for ways to trim the cost in each area. Keeps it simple.

  2. valleycat1 says:

    Good advice. I look at mine as fixed versus nonfixed. So I do have certain categories like rent/mortgage, insurance, any routine loan payments, work commute expenses, etc. Lunches out, new clothes, added payments toward loans/debt, or whatever, aren’t ‘unnecessary’, but they are nonfixed & open to adjustment!

  3. valleycat1 says:

    Good advice. I look at mine as fixed versus nonfixed. So I do have certain categories like rent/mortgage, insurance, any routine loan payments, work commute expenses, etc. that are fixed (nonnegotiable amounts). Lunches out, new clothes, added payments toward loans/debt, or whatever, aren’t ‘unnecessary’, but they are nonfixed & open to adjustment!

  4. Julia says:

    I recognised that I could save hundreds by completely cutting out fast food – prepare all meals at home. I think every fast-food trip was/is unnecessary (at least for me). Instead, I have a goal to limit myself to $200/mo for food and groceries. This includes every meal whether home-made or out, and everything I purchase at a grocery store. This makes it easy to track. It also means splurging one day is going to have consequences another day (that big mac means I’ll have to eat tuna for a week – not to mention all the extra time on the treadmill.)

    For the clothes example: instead of trying to decide if that dress was necessary, pay attention to the bottom line. If you spent $200 on clothes last month and think some of the purchases may have been unnecessary, then limit yourself to $150 this month. You still have room for some “unnecessary” clothes purchases, but you’ll have to ask yourself each time: Will buying this dress mean I can’t get something I actually need or something that I want even more?

  5. Mary says:

    I definitely like this post. Just in January My hubby and I started really cracking down on our budget and figuring out what was “necessary” for us.

    We have a similar system to Julia’s and it works really well for us. We are always looking for ways to “trim the sails” or, expand or cut down in one category or another. Eg, In March we cut down our grocery and eat out budget by $50 each, which really helped us realize what we could and couldn’t buy. Now we just upped our grocery budget so we could buy better quality food, but kept our eat-out budget the same.

    They key is to always be willing to try making changes to your budget to find the best solution for you.

  6. JK says:

    As a first step I’d assume food, shelter, clothing, medical and insurance are needs and closely examine absolutely everything else and either cut it out completely or at least reduce it significantly.

    Now go back to the things you called necessities in step 1. Yes you need those basic categories, but do you need them to cost as much as they currently do? I think this is where a lot of people miss potential savings. They figure their rent/mortgage falls under necessity and never give it another thought. But do you need a big/fancy a place as you have? Can you downsize? Can you rent out a room, or garage space? Give all the things you considered necessities the same review. Yes you need clothing, but if you’re like most people you already have more than you can wear and don’t actually need anything. Did you have to go to work naked last month, no? Have you lost, given away or worn out anything since then, no? Then you don’t need anything. Eventually you will, but for now be rutheless. Adding a tiny clothing budget back in later will feel like a wild spree if you go for a while without treating clothing shopping as entertainment.
    Yes I’m being a little extreme, but my point is that when an expense falls into the classic “necessity” categories we tend to stop really examining them. Taken to crazy extremes you could say that if shelter and food are necessities then a McMansion and a Porshe can stay in the budget. Of course the average person doesn’t have either but the principle is the same. The easy reductions are on the clearly nonessential items, but don’t forget to go back and reevaluate the necessities to see if they can also be met more frugally.

  7. Starshard0 says:

    I’ve been considering experimenting a little with how little I can live on. I’m interested in trying to cut my food expenses to under $100 a month using coupons, buying in bulk, and eating more staples (ouch!) and unprepared foods.

  8. SEC Lawyer says:

    Trent’s series, run several months ago, about how to cut the cost of each category of spending in the “average family’s” budget would be very useful for this exercise. Trent, you should consider editing that series, including responses to the relevant blog postings, into a “book.”

  9. kristine says:

    I think that when something becomes normalized, it masquerades as a necessity: TV, phone, AC, living rooms, microwaves, dishwashers, engagement rings… Today my daughter got a Droid at BJs as a birthday present from her dad. Her friends all see a cell phone as a necessity. I on the other hand, got a 20-buck prepaid, and had a 15-buck sim put into it to connect it my account. I see my cell phone as a local societal expectation, not a need at all. The salesman smiled at me and said- you should try a phone with internet and keypad. Once you have one, you’ll never go back! To which I replied- that is exactly why I will never have one!

    In my spending plan, I have negotiable/variable expenses in red. If an unexpected but non-emergency expense comes up, it is extremely easy to see where we can temporarily adjust.

  10. Mike says:

    We budget for “mad money” which is a category for all of those personal wants that don’t fit into the family budget. It’s funny how you become very conservative with your personal funds. I call this the phenomena of using other people’s money. When you spend the family’s money, you are more likely to be wasteful even though it still comes from your paycheck. But you’ll guard your personal mad money account very closely because it’s “yours.” The same phenomena can be found in businesses, governments and religious organizations.

  11. Jules says:

    “Necessary” – expenses that will get you into deep trouble if you skip them. Things like rent, health insurance, cell phone bills, gas money, etc.

    “Unnecessary” – expenses that can be trimmed as much or as little as you please. Things like food, electricity (to a point), clothes, etc.

    From a finance point of view, this definition makes the most sense. Of course you could also trim the “necessary” items, but they tend to be fixed and, barring a negotiation, you won’t be able to reduce them by much.

  12. Defining necessary and unnecessary spending is a key to getting out of debt.

    Before you make this distinction, ask yourself this question:

    How bad do you really want to get out of debt?

    You’ll find that this will influence where you draw the line for necessary and unnecessary.

    When I really wanted to get out of debt, I found that most things in my life were unnecessary.

  13. holly says:

    necessary = food
    unnecessary = filet and asparagus in Oct.

    My Dad is in the hospital so I am spending WAAAY more on food out. Most days I pack domething to have lunch or dinner w/him but some days I either have nothing or am running so many other errands it is not possible to carry food with me in our 90 degree weather (yes, I do have a cooler & ice packs). I am also spending WAAAY more on gas going to see him but that, under my circumstnces is necessary.

    Therefore, I am being REAL careful to use coupons for groceries, HBA, food out and batching my errand running w/visits to dad. Also, my ac is set MUCH warmer when I am out of the house for these longer times.

  14. tarynkay says:

    We have so much stuff and so many expenses in this country that it’s hard to work out what we need vs. what we buy b/c everyone expects us to. Try and challenge your assumptions about what you “need.” For instance, I have never bought garbage bags. We use plastic bags from the grocery store. At stores that charge $0.05 per bag, we bring cloth, but most stores do not charge. The small bags mean that we take the trash out more frequently. This is great, b/c it’s never heavy, and it never stinks up the house. We compost and recyle, so we don’t produce that much trash, anyway, so it hasn’t been a problem. I don’t know how much garbage bags cost, but I’m sure I could afford them. It’s just why spend the money when I don’t care about having garbage bags? I absolutely agree with JK above about the clothes- while there probably are jobs that require a constant influx of new clothes, most jobs do not. Most people can get away with not buying new clothes every year. Once you’ve cut expenses down to the bone, ask yourself what it makes you miserable to go without, and then add that back in.

  15. Geoff Hart says:

    Here’s a useful touchstone that I use: I work as a self-employed editor, so many things that take time, that I don’t enjoy doing, and that stop me from earning income fall into my unnecessary category. I’m a freelancer, so ymmv. For example, I did my own tax returns without any problems for something like 20 years before I realized I hated doing it, and that it was costing me time I’d rather spend on other things. So I hired a good accountant, and despite his high cost, he probably saves me about as much money (based on how long it would take me to do the work myself) as I spend.

    As another example, if I’m working on a tight deadline and can’t afford an hour to make dinner and clean dishes afterwards, it makes more sense for me to order delivery food. The price is easily double what it would cost to make dinner myself using ingredients already in the fridge, but the hour it would take costs me easily double the cost of the food in lost income. So for me, it makes more economic sense to order food than to cook it during a work crunch period. (Note that in reality, the work has to get done whether or not I cook, but the hour I spend cooking at dinner time is an hour I don’t have available to do work and finish the job before I’m exhausted.)

    One way to determine whether an expense is “necessary” is to try doing without it for a few weeks, or at least reducing its frequency. If you find that this “sacrifice” is costing you too much money, time, or satisfaction, then it’s a necessary expense *for you*. If you find you don’t miss it much, or that there are no unexpected costs, it’s unnecessary *for you*.

    Note that “unnecessary” doesn’t mean you should never do something. As an occasional lapse, or a special treat, by all means do occasional uneconomical things that bring you pleasure. Just don’t fall back into the habit of doing them regularly if they’re not really necessary.

  16. Christina Crowe @ Cash Campfire says:

    Excellent advice. I have a major problem with buying books, mostly books I don’t really need. I’ll be browsing Amazon and then suddenly I’m in the book section looking at romance novels or books on writing web copy.

    I tell myself that I really do need a particular book, but if I stop to think about it – that’s really not true at all. I could just answer all my questions online, though books make finding information easier.

    I’ll try your advice, calculate how much I spend and cut the costs. I won’t cut books off completely, but I think I’d benefit from a major cutting down. Thanks for the great read!

  17. Lisa says:

    Necessities are always something I really struggle with. We don’t have TV, I have a basic cellphone with a cheap plan and I have reduced all my monthly costs a lot over time by changing a lot of our habits and installing energy efficient contraptions. Problem is, that extra money doesn’t always go into savings or things I NEED. I love to travel, so usually the extra money goes towards that. I don’t see this as a direct NEED but sometimes I can justify it as I usually travel to visit friends and family, none which I have here where I currently live so I do come back happy and recharged when I do travel. I think NEEDS change a lot over time too, so I would suggest that it’s probably a good idea to go over your needs a few times a year. Still trying to justify how often I do travel, I might have to cut back :D

  18. JJ says:

    It’s admittedly a little “math geeky”, but… One way to get around the problem is to get rid of the black & white, necessary/unecessary way of thinking. Instead, see it as a continuum. See “necessity” as a trait that any expenditure can have a little of, a lot of, or some value in between.

    Lunch is a good example. If you spend $10 to eat out for lunch, maybe that’s 50% necessary. I mean, you gotta eat, right? And if you ate at home, it might cost you five bucks. So half of the expense is necessary, half is luxury.

    Cable might be only 10% necessary. A cellphone plan maybe 75%. Water bill is 100%. The infamous latte might be 0%. You get the idea.

    Then instead of just marking each expense in the spreadsheet with a Y or N, you’d plug in a percentage. Multiply it all out to get the total of necessary costs. Similarly, you could figure the portion of costs that are unnecessary.

    You probably won’t reduce the unnecessary total to $0, since it’s inherently tied in to necessary things. But you can still have a goal of reducing it.


  19. Terry says:

    I can’t tell you how much this blog is helping me get clear about my finances and values, and so much more! Thank you! I have literally been trying for *years* to definite what is necessary and not for me and am realizing that the basic categories of food, shelter, clothing, car maintenance and gas, and personal care (which for me includes medical) for me and my pets are necessities. Within those categories there are sub categories, for example food needs to be whole, unprocessed as much as possible and fresh as much as possible, etc. I am encouraged by what you write and what other people post and don’t feel like such a freak sometimes trying to cut expenses wherever I can. In this economy I guess that’s becoming more the norm, which is good. Am still considering whether or not to cancel my basic cable. Mostly it just sucks my time & energy and keeps me from doing things that are really fun or useful or whatever. I want to add how grateful I am, too, to be in the position of having these challenges, what to buy, what not to buy.

  20. Katie says:

    All Your Worth recommends putting the USDA’s subsistence level food budget in as a “necessary” expense and classifying every dollar amount above that as a “want,” which seems reasonable to me.

  21. Adam Jaskiewicz says:

    Extras are “unnecessary”. I think of a cell phone as a necessary expense. I use it to communicate with friends, family, work colleagues, my landlord, and anyone else I need to keep in touch with. I don’t have a land-line, and one wouldn’t make sense since I probably spend more time away from home (work, visiting my girlfriend, hanging out with friends, running errands, etc.) than I do at home.

    However, I have an iPhone. I count the extra cost for having an iPhone ($25/month for a 2GB data plan, $15/month for 1500 texts) as an unnecessary expense. The rest of my bill ($39.99/month for 450 minutes) I would be paying even if I weren’t splurging on an iPhone. The 200MB data plan isn’t an option*, but I should probably look into sending and receiving texts more cheaply, if I can find a relatively seamless way to do so. SMS is used extensively to communicate in my circle of friends, so simply not having texting isn’t really viable.

    * 200MB is not much data. 2GB is a lot of data. I wish AT&T offered something in-between. I average 400-500MB/month, which I don’t think is atypical.

  22. reulte says:

    I don’t have a necessary or unnecessary column in my budget. I simply compare it two last months and ask (1) is it still reasonable and (2) what can I do to tighten it. These questions go for the so-called necessary items such as rent, insurance, etc. For instance, my electric bill went up at the beginning of summer (I live in the south) so rather than simply considering it necessary (which it is) and unchangeable, I asked where I could be a little more frugal. Now, each morning before I go to work I turn off the ac and I turn off the strip controlling everything else.

  23. kristine says:

    Katie, the only problem I have with Federally figured amounts is that they take a national average, which may be unreasonable in poor urban areas, where food is very high priced (captive local no-car populations), and places like Metro NY.

    Same thing with housing averages, and the way financial aid is decided. National figures do not accurately reflect the cost of just squeaking by in these areas. For instance, reg self-serve gas on LI is 3.09 today. Well above national. On my corner, a north shore area, it is 3.49 full serve. A BK value whopper jr. is 1.29, not the 1 dollar elsewhere. Figure 30% more on most things in general.

  24. Debbie M says:

    If you’re having trouble with “necessary” and “unnecessary,” you might want to use different categories to capture the same thing. Like “pleasures” and “guilty pleasures.” Or “life improver” versus “distractor.”

    Or maybe you could have three categories: “mostly necessary,” “mostly unnecessary,” and “both.” You would attack the “mostly unnecessary” expenditures first, then take a closer look at the “both” expenditures.

  25. I have a really simple way to tell if it is necessary or not, time. If I think I need something I just wait a while and let that old impulse to spend pass and usually I can then see the truth, which is often no I don’t need it. For example we built a counter tops and shelf for our kitchen our self, not professional looking but functional. When ever I get thinking I’d really like to buy some new prettier cabinets I stop and think well obviously since we function fine with what we have its not strictly necessary. Of course if we were trying to sell the house it would become much more necessary.
    Sigh, I sure do like thinking about new kitchen though….

  26. Kathy F says:

    When I track my food expenses in a spread sheet, I have subcategories of grocery and eat-out. I view the money spent in the eat-out category as more discretionary and generally costing me more per meal than home-prepared from groceries, so I really want to keep an eye on it. I also view my “clothes” categories as discretionary spending, because the spending can vary a lot. Some women buy more clothes than they really need or buy clothes that are too expensive.

  27. I agree with the advice Trent provided in this post. If you’re just starting out, just focus on tracking your spending by category. But, you also need to know how much is a good benchmark for spending in each category. I’ve always liked the tools Crown Financial Ministries offers. There are three free tools, in particular, I use for people in budget coaching. They may be of help to you. Once you have the tracking down, you can look at areas where you might be over spending as mentioned in the post.


    % spending guides for benchmarking (a good place to start)
    30 day diary for tracking expenses
    Monthly income and expenses for budgeting.

  28. Space Navigator says:

    Do women really buy $200 worth of clothes per month. No wonder 60% of the stores selling merchandise out there are merely women’s clothing stores and most of the rest are nail parlors, hairdressers, spas, tanning salons, tattoo parlors, ladies perfume and cosmetics, jewelry stores and toenail cutting businesses. Most of the remaining stores out there even have most of their space taken up by women’s clothes, jewelry and ladies cosmetics.

    There is auto service. However, there are hardly any remaining bookstores, furniture stores, appliance stores, men’s shoe and clothing stores, newsstands, electronics stores, camera stores, movie theaters or other remaining venues of interest to both sexes. I have to drive 28 miles to get a pair of shoes or a new shirt to replace the one that tore, or get some lumber because virtually all of the stores you find are of absolutely no interest except to women. Money is no fun to spend anymore because there is no place to spend it.

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