What is Non-Discretionary?
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Non Discretionary Definition
Non-discretionary spending is essential and non-negotiable spending defined within a budget.
In this context, budgets can be personal or pertaining to legal contracts or government expenses.
As it relates to personal budgets, non-discretionary spending refers to spending on expenses necessary for daily existence.
Examples of these expenses include:
- Mortgage payments
In contrast, discretionary spending refers to non-essential expenses, such as hobbies and travel.
For example, going to a movie or buying an expensive gift for a friend is considered discretionary spending.
It is important to account for non-discretionary spending first while setting a budget.
Extra cash left over after non-discretionary expenses should be used for discretionary spending.
Non-discretionary in Legal Contracts
As it relates to legal contracts, non-discretionary spending is spending required by a contract, budget, and other lawful commitments.
For example, the budget for a government department may set aside a certain amount for environment-related initiatives as non-discretionary spending.
Non-discretionary Expenses Explained
Within the U.S. budget, non-discretionary spending is referred to as mandatory spending and includes spending on social service programs, such as social security, Medicaid and Medicare.
Funding for research and defense is considered discretionary spending.
As the U.S. population grows older, the share of mandatory spending is expected to rise relative to discretionary spending.
In finance, a non-discretionary account is a brokerage account that requires client permission for each trade made by a broker.
Thus, the broker would have to contact the client for each trade.
A discretionary account, on the other hand, allows brokers to initiate and close trades without client permission.