Expense Tracking: Identify Essentials vs Discretionary

2 min read

Purpose: Teach beginners how to use transaction history to separate essential costs from discretionary spending and to create realistic budget estimates.

1. Gather transaction history

  • Collect 3–6 months of bank and credit card statements.
  • Export or list transactions by date and merchant.

2. Categorize consistently

  • Assign each transaction to a category and label it as essential or discretionary.
  • Be explicit: groceries (essential), restaurants (discretionary), utilities (essential).

3. Use ranges, not single numbers

  • For each variable category, determine a typical low, average, and high monthly cost.
  • Use the high end when sizing buffers; use the median for planning.

4. Identify recurring but irregular expenses

  • Flag annual or semi-annual costs (insurance, registration) and divide their annual cost into monthly contributions (sinking funds).

5. Automate and review

  • Use a simple spreadsheet or a budgeting tool to import transactions and update categories monthly.
  • Review categories quarterly and adjust estimates based on recent trends.

Quick checklist ✅

  • Export 3–6 months of transactions.
  • Categorize each transaction and mark essential vs discretionary.
  • Compute low/median/high ranges for variable categories.
  • Create sinking funds for irregular annual costs.

See also