And while I heartily agree with this idea, in my experience trying to categorize expenses in such an either/or manner is sometimes less than helpful. For my own purposes, I like to think of spending in five separate categories: necessities, secondary necessities, investments, luxuries, and fantasy spending.
Of these five, by far the most insidious - and least discussed is the fantasy category. But before we get there, here's a quick run down of my 5 basic spending categories.
Necessities. When I talk about necessities I mean it in a very literal sense. To me, necessities include food, water, shelter, basic clothing and medicine/health care. These are things I never feel badly about spending money on.
Secondary Necessities. Secondary necessities are things that you need in order to provide the primary ones. This mostly includes job/income related expenses. So for me right now that's mostly computer, server, camera, and related expenses, but for most people this probably includes the cost of commuting, work appropriate clothing, and other things that you need in order to earn your living. These sorts of expenses are generally necessary, though as you free yourself from the world of employment, they will go down considerably.
Investments. When I refer to investments, I'm not talking about things like retirement contributions or other methods of stocking away money - these are not really "expenses" in my book, rather they are "lack of expenses!" When I talk about investment spending I'm referring to things that help to provide for necessities or secondary necessities in the long term.
In this category I include things like extra principle payments on the mortgage, home repairs, the chest freezer, tools for the home/car and garden, kitchen/cooking equipment, and I also include in this category expenses related to staying healthy such as healthy food, vitamins, and exercise related expenses. This category might also include educational expenses. This sort of expense I generally allow myself - though it's sometimes easy to convince yourself that something is an "investment" when it's really fantasy spending (see below.)
Luxuries. Now, when I talk about luxuries I mean things that actually make your life better, easier or more fun. For me these include things like air conditioning - seriously - we just suffered through the hottest June on record and I was SOOO happy to have the A/C! I also include my car in this category, as well as my bicycle, television, Netflix, all entertainment and recreational expenses, any alcohol or wine, any desserts or snack foods, the occasional meal out, pets and all of their associated expenses, appliances like dishwashers and laundry machines, and even things like hot water for bathing.
You may be surprised to learn that a hefty chunk of my day to day expenses fall into this luxuries category. I try not to go overboard with this sort of thing, and I also try to make sure that I'm really getting enough enjoyment out of the item or service to justify the amount of work I have to do in order to pay for it.
Fantasy Spending. OK... now this is the category you've probably never heard of before, and I would venture to suggest that it's the most dangerous spending category. My personal belief is that in this culture we are all master picture painters. We excel at creating images of ourselves as "successful," "beautiful" and "important" people who wear the "right" clothing, live in "good" neighborhoods, and drive "nice" cars. We are masters at creating fantasies about who we are and we spend an inordinate amount of time, money and energy simply to pump up these fantasies.
Examples of fantasy spending can differ wildly from person to person, because our "picture painting" can take so many different forms. But here are some examples. Anything that might be classified as a status symbol is definitely fantasy spending - fancy cars & houses come to mind. Women are particularly susceptible to the fashion industry - believing the nonsense that if we just have the "right" shoes, or blouse, or outfit or "look," it will somehow make us happy.
Collections and hobbies are also ripe fields for fantasy spending. Many of my musician friends have fallen into the trap of collecting instruments. If you're a professional guitarist it's perfectly plausible that you might need several different instruments for different situations, but I've known plenty of folks who can barely strum three chords, yet have 20-30 expensive guitars that they never play. And then there are people who fill their homes with books & magazines that they don't read, DVD's that they don't watch, craft materials that they don't use - I mean people even have fancy "front rooms" filled with expensive furniture - and these rooms are never used... they're just "for show."
But wait, it gets worse... she started telling me all about her wonderful new convection oven - I've never been clear about what exactly a convection oven is, so she explained that it circulated the heat around making it cook more evenly. I asked her if she felt it had made a difference in the cooking results, and she said she didn't really know because the only thing she uses the oven for is to bake pumpkin pie once a year at Thanksgiving! Talk about fantasy spending! It took some real effort to keep my mouth shut on that one!
I could go on and on with different examples of this sort of spending, and that's the thing about it - it's endless. And the reason it's endless is because when it comes right down to it, it's all form over substance - none of it really makes our lives any better. Having the "right" clothes, or car, or house or whatever won't make you happy. Neither will surrounding yourself with guitars that you don't play, or books that you don't read, or convection ovens that you don't use, or home decor designed to pump up your personal image as an xyz kind of person.
OK... so I know that I probably spend way too much time harping on the idea of dealing with your emotions and facing yourself - but here's a great example of why I think that's so important. It's really hard to cut back on fantasy spending if you're not willing to let go of the fantasy.
But I have found that the more I let go of the whole idea that I need to be a certain kind of person, and portray that image through my stuff and my purchases, the less I feel drawn to this sort of spending. And once you start letting go of the pictures, it becomes a self-reinforcing cycle. You let go of the need to pretend to be something you're not, so you don't need to spend money pumping up that fantasy, then you don't need to spend so much time and energy working to afford the expenses, so you have more time and energy to simply be, and to explore who you really are.
At any rate - if you're trying to pare down your expenses, my suggestion is to take a long hard look at the things you spend money on, and ask yourself if it's really, truly making you happier, or if it's only helping you to maintain the pretty picture.
So what do you think? Do you have any examples of fantasy spending to share?