A Quick Thought Experiment

Discretionary spending refers to purchases of non-essential items. It’s what you do with income after you’ve paid for housing, utilities, other bills, groceries, personal hygiene, household items, and whatever else you deem essential to keeping life operational. The most common discretionary spending items are luxury goods, entertainment, recreation, and travel.

In this thought experiment around discretionary spending, I focus on wines, dining out at restaurants, and trips/vacations–the areas where I personally find to be my largest discretionary budgets. In examining cost, frequency, and perceived value, I explore where the “sweet spot” may lie when it comes to being strategic about discretionary spending.

The figures presented here are for illustrative purposes. I didn’t audit or reference any of my own budgets for this, but wanted to keep things simple and high-level.

Wine Consumption

Annual budget: $1,920

• 2 bottles per week at an average of $20/bottle
• 1 bottle per week at $40/bottle
• 2 bottles per month at $80/bottle
• 1 bottle per month at $160/bottle

Low cost, high frequency

• Pros: can try more variety of wines, get more exposure to different winemakers, styles, and regions
• Cons: somewhat excessive amount of alcohol consumption per week (esp. if not shared with others), more hit or miss volatility with the wines

High cost, low frequency

• Pros: can try some of the more prestigious and “brand name” wines; every bottle opened can feel like a special occasion
• Cons: don’t get to try as many types of wines; even if most are great hits, the 1 occasional miss will feel like a big deal and waste of money

Takeaways

• The approach really depends on my health goals and desired lifestyle. I’m trying to cut down alcohol intake in general, so I feel like moving “upstream” to less bottles at higher price points is an attractive option.
• I might still opt for cheaper bottles depending on the occasion (e.g. needing to use red wine in cooking and drinking the rest – a cheap bottle of Beaujolais would do), but savoring a nicer $80+ bottle here and there sounds like a good time.

Restaurants

Annual budget: $2,400 (for 1 person)

• 2 meals out per week at an average of $25/meal
• 1 meal out per week at an average of $50/meal
• 1 meal out every 2 weeks at an average of $100/meal
• 1 meal out per month at an average of $200/meal
• 1 meal out per quarter at an average of $600/meal

Low cost, high frequency

• Pros: variety and more chances to try different cuisines from different areas; more social occasions to hang out with others
• Cons: higher volatility in hit or miss; health drawbacks from eating out too much

High cost, low frequency

• Pros: epic, memorable meals of the highest caliber; great way to celebrate special occasions
• Cons: requires more planning and reservation jiu jitsu for the higher-end, exclusive spots; less casual and some require more attention to dressing up; a miss will feel more painful due to high cost

Takeaways

• The combination of having kids plus the pandemic really limited my restaurant-going. I went from weekly outings to maybe once per month during warm months and once per quarter during colder months. I’ve also come to appreciate home-cooked meals more for the health benefits.
• There will always be a mix of high and low when it comes to eating out–sometimes a quick Shake Shack stop hits the spot real nicely–but overall, I’m trending towards once-a-month and this could mean seeking out some nicer spots–perhaps not 3-star Michelin with extensive wine lists, but definitely an experience to look forward to and mark as special.

Trips/Vacations

Annual budget: $12,000 (for a couple or small family)

• 2 weekend trips per month (domestic, local) at an average of $500/trip
• 1 weekend trip per month (domestic, local) at an average of $1,000/trip
• 1 week-long trip per quarter (domestic, short flight) at an average of $3,000/trip
• 2 ten-day trips per year (international) at an average of $6,000/trip
• 1 two-week trip per year (international) at an average of $12,000/trip

Low cost, high frequency

• Pros: get to know more places nearby and create greater volume of memories; more action and variety of activities; more exposure to seasonal changes; opportunities to revisit favorite places
• Cons: brief, quick stays; may not feel like truly “getting away”; experiences may all blur together

High cost, low frequency

• Pros: epic, unforgettable experience treasured forever; opportunities to “settle down” and really tune into relaxation mode
• Cons: lots of heavy lifting with logistics, even if you enlist outside help; lots of variables in travel and experience, which creates great probability for higher stress moments

Takeaways

• Pre-pandemic, I would’ve sought a healthy mix of the low cost options sprinkled with the once-a-year epic trip. The pandemic has made air travel less desirable, so the default has been long weekend or 4-day trips to domestic spots, usually within a 2-3 hour driving range.
• The purchase of a vacation home has also changed things for us–we’re more likely as a family to just go hang at the house and go on short day excursions from there vs. booking any other accommodations or extended trips.
• When the kids are a bit older and vaccinated, I can see us doing 1-2 epic trips per year, as a way to explore the world and to spend extended family time away from the familiar spots.

Towards a Philosophy of Discretionary Spending

Reviewing my personal takeaways from the above categories, the implicit themes are health and time. This I reason is due to getting older, being more conscious of having a healthier lifestyle, and having kids.

Wine consumption and eating out will never completely fade away from my pastimes, but I can see myself doing less of both on a regular basis. A good deal of my non-work hours will be spent with family, so I can see these moments filled with kid-centered activities and more home-cooked meals. When it comes to trips and vacations, these too will be impacted by lifestyle considerations and family. I anticipate more nature-based trips (vs. decadent food tours or urban nightlife activities) where there will be plenty of physical activities (e.g. hiking, kayaking, sports, etc.).

Plotting the discretionary spending categories across cost and frequency helps to run scenarios and identify what combinations hit the value “sweet spot” given where I am in my personal life. My bet is that most of us go through life spending reactively (based on short-term need, FOMO, or some kind of “can’t miss deal” manipulation) and have rarely stopped to examine what kind of consumer we are. Discretionary spending in a capitalist consumer-driven society is in many ways, the ultimate form of individual expression. Reflecting on the type of consumer you are is actually a very insightful way to get to know yourself.