What Is a Flexible Expense?
A flexible expense is a discretionary purchase that can be altered or eliminated altogether without a significant downside. Economists often use the term consumer discretionary spending to describe flexible expenses.
Understanding Flexible Expenses
When financial advisors counsel individuals, they routinely ask them to estimate their expenses, separating those that are necessary and non-negotiable, like mortgage payments, and those that are flexible, like entertainment costs. Entertainment costs can usually be broken down further into categories such as a cable television subscription, music downloads, and evenings out.
- In personal budgeting, a flexible expense is one that can be cut back or eliminated.
- Even inflexible expenses can contain flexible components. It's the filet mignon in the grocery budget.
- Do you wonder where all your money is going? List your flexible expenditures.
Knowing where the money is going, and separating the flexible from the inflexible, can help people cope with a budget that is stretched to the limit or beyond. Even some apparently inflexible costs, like groceries, may include flexible components, like pre-cooked entrees or the most expensive cuts of beef.
Types of Flexible Expenses
A flexible expense may be recurring, although the amount spent and the decision to incur the expense are still matters of choice. For example, if a household elects to order a cable or satellite television service, the cost recurs monthly. The expense may be reduced by opting for a plan with fewer premium channels. The consumer may "cut the cord" and use an à la carte, Internet-based streaming service for a lower monthly cost than the bundled packages offered by satellite and cable companies. Or, the truly budget-conscious can buy an inexpensive digital antenna and watch broadcast television for free.
Even the cost of utilities such as electricity may be considered a flexible expense. Turning off unused lights and appliances, using less powerful light bulbs, and hanging laundry out to dry instead of using a dryer are ways to reduce power consumption and household costs.
In addition to recurring expenses, there also are periodic expenses. A vacation or a new bicycle would be examples.
Examples of Flexible Expense
The contemporary consumer seems to be faced with an extraordinary range of goods and services that are available at prices from discount to super-premium. A consumer can buy a leather handbag for $20 at a warehouse store or spend $40,000 to $50,000 on a single Hermes Birkin bag. Somewhere in between probably works for the budgets of most people.
To an economist, flexible expenses are consumer discretionary spending items.
But most consumers make less budget-busting decisions every day: whether to buy the generic or name-brand aspirin; whether to go out for coffee or make it at home; whether to join a health club or run in the park.
Most consumers know what they should do if they need to keep their expenses down. But it can be helpful to list all of one's flexible and inflexible expenses in order to really understand where all the money is going.