.jpg "By Justin from Lincoln Park, NJ, USA (Coffee Cup) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons")
A lot of financial professionals make two assumptions that we believe are incorrect. These assumptions are:
- your situation is fixed
- your discretionary money is all you have left with which to make financial choices
It’s assumed that your income won’t change, that your mortgage is fixed, and that your bills will remain constant.
If you work with a financial professional, they may help you by telling you to break down your money into the following types:
- fixed expenses
- variable expenses
- irregular expenses
- discretionary money
The message is that this discretionary money is all that you can change.
It’s all discretionary
The fact is that you can make decisions on all of your expenses, and here is how we, instead, break your money down:
Easy to Change
These are expenses where you have immediate control over how much is spent. For example, you can decide right now how to much you are going to spend eating out next month.
Moderately Difficult to Change
These are items where you can make a change, but it might take a little extra effort, and it might take an additional month for the change to take effect. For example, if you’re not in a contract, you can change your cable service by making a phone call. When making a change in this area, it’s best to wait until the change has taken hold before adjusting your spending plan.
Difficult to Change
Items in this category include getting out of a contract, selling some things including your car or your house, and any other change that requires a lot of time and effort.
The main point is that you are never stuck in your situation. If you are in debt, living paycheck to paycheck, or just aren’t on track with your goals, remember that you can make different choices on all of your spending. Some decisions just may be harder to make or take more time than others.
What about you? Have you recently gotten out of debt, or reached a financial goal recently? Did you find that you had to make bigger changes than just adjusting your “discretionary” money? Share your experience.
