Discretionary Spending - What Is It and Why It Matters

The type of strong economy we are now experiencing contributes, as we have already stated, to increased "job numbers." That means that more people in America are working; less people are unemployed. That also means that more people are providing what their families need - and even some of what they just simply would like to have, but don't need at all. You may have seen a bit of that evidenced under your Christmas tree last month!

When the economy is as strong as it currently is, people can typically afford the "extras." This ability is referred to as "discretionary spending." To better understand it, when Mom and Dad head to the grocery store to pick up needed breakfast cereal, they can also toss ice cream or a bag of chips into the cart for a treat.

Non-discretionary products include such items as food basics like the cereal. They are indicative of choices: chicken rather than steak, canned tuna rather than the more expensive fresh salmon, eggs and milk rather than cupcakes and chewing gum. People need these basic products in order to function properly health wise, as well as in society.

As contrast, items that are discretionary tend to be nonessentials like the chips or ice cream. They can also include things like gourmet coffee or high-end recreational products or even upgraded "needed" products. Such upgrades might include a more expensive Apple IPhone when a JitterBug would get the job done.

But discretionary items can also include purchasing the fifth pair of dress shoes, the second pair of blue jeans or one more coat when three are already hanging in the closet. Therefore, as the economy fluctuates, it has direct bearing on what customers are willing - and able - to buy. That may vary from person to person for any number of reasons. For example, I once read about a woman who had spent $35,000 on makeup she "needed." I do think, however, that most of us would put that in the "discretionary" category!

The important thing to keep in mind is that most people spend reflective of the current economic situation. And that has direct bearing on what you, as a possible future entrepreneur, might want to invest in. This is particularly appropriate if it later becomes the sole focus of your life's work.

As we take a look at successful entrepreneurs, consider whether their products are discretionary or essential to the majority of consumers. Then consider what your potential business product would mean to future customers - and which category it falls in.

How would that affect your investment of time and energy? This is a basic question for any would-be entrepreneur to consider thoroughly.