What is Personal Spending?

Personal spending is the amount of money an individual will use to purchase non-essential goods or services. Economically speaking, this type of income often carries the term discretionary income. Once a person receives her pay from a job and has paid taxes and all expenses related to shelter, food or clothing, the remaining income is available for personal spending. Individuals will often create a budget for this money to ensure they do not spend beyond their means. Nations often track this spending to determine how strong the current economy is, among other factors.

Common types of personal spending expenses include eating out at restaurants, personal shopping, buying luxury goods or other extra expenditures. Most individuals will spend this discretionary income rather than saving it for a later date. Another economic term for this is opportunity cost. By spending the income rather than saving it, individuals are foregoing the ability to earn interest on money placed into a savings account. The lost money gained from interest is the opportunity cost — giving up one benefit for another — of the personal spending process. When banks offer extremely high interest rates for savings accounts, individuals will typically limit their extra spending in order to earn more money.

Budgets can help individuals limit their money spent on personal spending. A standard budget lists all essential expenses for maintaining a specific quality of life. These expenses include home payments, utilities, food, gas for cars, car payments, debt payments, cell phone bills and other miscellaneous items. This number is subtracted from the total income an individual earns for a specific time period, such as a month. Any positive amount left over is available for non-essential spending. Individuals can then budget this for clothes, eating out, fun money or saving. A simple way to divvy this money up is to use percentages, such as 15 percent for clothing, 15 percent for eating out, 10 percent for fun money and 60 percent for saving.

Nations track consumer spending because consumer typically represent a large part of a nation’s overall economy. In well-developed capitalistic economies, consumer spending can account for nearly 70 percent of a nation’s economy. Governments and businesses need this information to plan how much to increase the supply of goods and services. A consumer spending economic indicator will also indicate if the economy is growing or contracting. A disadvantage to consumer spending figures is that they only report the past spending from consumers. A nation may already be in a contractionary period before the nation can calculate this indicator.