Necessities or Luxuries

Most spending falls into two simple categories: necessities and luxuries. Almost every dollar you spend could be divided in that way. The challenge of dividing our spending in such a way, however, is made more difficult because of the simple fact that most of us are not now and never have been in dire need.

Still, a “necessities versus luxuries” spending breakdown is useful for anyone trying to organize their finances and use their money efficiently. Most people spend most of their money, as opposed to saving, investing, or giving it away. Therefore, whether you are buying necessities or luxuries, spending has to be the starting point for any financial planning. A dollar spent is not a dollar that could be used in another way; a dollar not spent has the same future value as a dollar earned. You can increase the size of your financial pie only three ways: spending less, earning more, or, in some cases, paying less tax.

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