GM Lesson 008 Fixed and Discretionary Spending
Learning Intentions
By the end of this lesson, students will be able to:
- Distinguish between fixed spending and discretionary spending.
- Classify expenses in a personal budget.
- Explain how spending choices affect available income.
Prerequisites
Students should already be able to:
- Calculate total income over a weekly or fortnightly period.
- Add and subtract decimal amounts of money.
- Interpret simple financial information in context.
- Understand that income is money received and expenses are money spent.
Key Idea Summary
A personal budget compares income with spending.
Fixed spending is spending that is regular, expected and difficult to change in the short term. Examples include rent, phone plans, insurance, loan repayments and regular public transport passes.
Discretionary spending is spending that involves choice and can usually be changed more easily. Examples include takeaway food, entertainment, subscriptions, hobbies, clothing purchases and social activities.
Available income can be calculated using:
If a person wants to increase their available income, discretionary spending is usually the easiest place to make changes.
Direct Instruction and Worked Examples
Time Allocation
Time Allocation
Time Allocation
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- Introduction, warmup and vocabulary: 5 minutes
- Direct instruction: 15 minutes
- Understanding checks: 5 minutes
- Exercises: 20 minutes
- Homework: 20 to 30 minutes outside the lesson it was taught in.
Direct Instruction
A budget helps a person decide whether their income is enough to cover their expenses.
Spending can be separated into two main categories:
| Type of spending | Meaning | Examples |
|---|---|---|
| Fixed spending | Regular costs that are difficult to avoid or quickly change | rent, phone plan, insurance, loan repayment |
| Discretionary spending | Optional or flexible costs based on choices | movies, takeaway, games, coffee, subscriptions |
Some expenses can depend on the situation. For example, transport to work may be fixed if it is necessary, but extra rideshare trips on weekends may be discretionary.
Worked Example 1: Classifying Expenses
Mia earns $
Her weekly expenses are:
| Expense | Amount |
|---|---|
| Rent contribution | $ |
| Phone plan | $ |
| Groceries | $ |
| Streaming subscriptions | $ |
| Takeaway food | $ |
| Bus pass to work and study | $ |
| Movies and social activities | $ |
Classify each expense as fixed or discretionary.
| Expense | Classification | Reason |
|---|---|---|
| Rent contribution | Fixed | It is a regular required payment. |
| Phone plan | Fixed | It is a regular plan payment. |
| Groceries | Fixed | Basic food is necessary, although the amount may vary. |
| Streaming subscriptions | Discretionary | It is optional entertainment spending. |
| Takeaway food | Discretionary | It can be reduced or replaced with cheaper food choices. |
| Bus pass to work and study | Fixed | It is needed for regular transport. |
| Movies and social activities | Discretionary | It depends on personal choice. |
So Mia’s fixed spending is:
Mia’s discretionary spending is:
Mia’s total spending is:
Her available income after spending is:
Mia has $
Worked Example 2: Explaining the Effect of Spending Choices
Noah receives $
His fortnightly budget is:
| Category | Amount |
|---|---|
| Board at home | $ |
| Phone plan | $ |
| Public transport | $ |
| Groceries | $ |
| Gym membership | $ |
| Takeaway and cafes | $ |
| Gaming purchases | $ |
Classify the expenses.
Fixed spending:
Discretionary spending:
Total spending:
Available income:
Noah has $
Suppose Noah wants to save at least $
Required reduction in spending:
Noah needs to reduce spending by $
A reasonable change could be:
- Reduce takeaway and cafes from $
to $ . - Reduce gaming purchases from $
to $ .
Total reduction:
New available income:
Noah can reach his savings goal by reducing discretionary spending.
Worked Example 3: Deciding Whether an Expense Is Fixed or Discretionary
A student lists “clothing” as an expense.
This may be fixed or discretionary depending on the context.
If the clothing is a required school uniform or work uniform, it may be fixed because it is necessary.
If the clothing is an extra fashion purchase, it is discretionary because the person can choose whether to buy it.
Therefore, classification depends on the purpose of the expense.
Understanding Checks
Check 1
Classify each expense as fixed or discretionary.
| Expense | Fixed or discretionary? |
|---|---|
| Rent | |
| Concert ticket | |
| Weekly groceries | |
| Phone plan | |
| Fast food after school | |
| Car registration | |
| New headphones | |
| Electricity bill |
Check 2
A person earns $
Their fixed spending is $
Calculate their available income.
Check 3
A student has $
How much discretionary spending must they reduce?
Check 4
Explain why a gym membership could be considered discretionary even if it is paid every week.
Exercises
Simple Familiar Exercises
Exercise 1
Classify each expense as fixed or discretionary.
| Expense | Fixed or discretionary? |
|---|---|
| Rent | |
| Streaming service | |
| Weekly bus pass to school | |
| Birthday present | |
| Phone plan | |
| Takeaway lunch | |
| Car insurance | |
| Movie ticket |
Exercise 2
A student earns $
Their weekly expenses are:
| Expense | Amount |
|---|---|
| Board | $ |
| Phone plan | $ |
| Transport | $ |
| Snacks and drinks | $ |
| Games and apps | $ |
| Clothes | $ |
Classify each expense as fixed or discretionary.
Then calculate:
a. total fixed spending
b. total discretionary spending
c. total spending
d. available income
Exercise 3
Lena receives $
Her fixed spending is $
Her discretionary spending is $
Calculate her available income.
Exercise 4
A person has:
Calculate their available income.
Complex Familiar Exercises
Exercise 5
Amir earns $
His weekly expenses are:
| Expense | Amount |
|---|---|
| Rent | $ |
| Groceries | $ |
| Phone plan | $ |
| Public transport | $ |
| Takeaway | $ |
| Subscriptions | $ |
| Sport and hobbies | $ |
a. Classify each expense as fixed or discretionary.
b. Calculate total fixed spending.
c. Calculate total discretionary spending.
d. Calculate available income.
e. Amir wants at least $
Exercise 6
Sophie receives $
Her current fortnightly spending is:
| Expense | Amount |
|---|---|
| Board | $ |
| Phone plan | $ |
| Groceries | $ |
| Transport | $ |
| Coffee and snacks | $ |
| Streaming and music | $ |
| Social activities | $ |
Sophie wants to have at least $
a. Calculate her current available income.
b. Determine how much extra money she needs to free up.
c. Suggest a reasonable reduction in discretionary spending that would allow her to reach her goal.
Exercise 7
A weekly budget has the following totals:
a. Calculate available income.
b. If discretionary spending is reduced by $
c. Explain why reducing discretionary spending changes available income.
Homework Problems
Homework 1
Create a table with two columns: fixed spending and discretionary spending.
Place each expense into the correct column.
| Expense |
|---|
| Rent |
| Phone plan |
| Concert ticket |
| Groceries |
| Public transport to work |
| Fast food |
| Streaming subscription |
| Electricity bill |
| New shoes for a party |
| School or work uniform |
Homework 2
Mason receives $
His weekly spending is:
| Expense | Amount |
|---|---|
| Board | $ |
| Phone plan | $ |
| Groceries | $ |
| Transport | $ |
| Takeaway food | $ |
| Subscriptions | $ |
| Social activities | $ |
a. Classify each expense as fixed or discretionary.
b. Calculate total fixed spending.
c. Calculate total discretionary spending.
d. Calculate total spending.
e. Calculate available income.
Homework 3
A person earns $
Their fixed spending is $
They want at least $
a. What is the maximum amount they can spend on discretionary items?
b. If they currently spend $
Homework 4
Write a short paragraph explaining how discretionary spending choices can affect a person’s ability to save money.