What is a Fixed Expense | BankruptcyHQ
Your budget will likely include both fixed and variable expense costs if you are like most people. What is the difference between necessities and discretionary spending? This might surprise you.
Definition for fixed expense
Fixed expenses are established monthly.
Budgeting for fixed expenses is much easier than budgeting for variable costs and discretionary spending.
The most common household fixed costs are rent or mortgage payments, car payments, and real estate taxes. Although you can theoretically reduce your monthly mortgage payment by appealing your property tax assessment or refinance, this is not possible.
Rent is the same. Although you could reduce costs by renting a smaller home or sharing a room with someone else, these lifestyle changes are significant.
Fixed costs may include auto insurance, life insurance, and insurance.
Saving money on fixed expense
This is the main lesson: Fixed expenses don’t always have to be fixed in stone. You could save money or even lose your job by reducing fixed costs.
Fixed expenses are often the largest portion of your budget. So, saving money here could make a huge difference.
You won’t feel restricted by your savings on fixed expenses.
These low-cost options can be automated into your monthly budget.
It won’t make you feel more frugal if you lower your fixed monthly expenses.
Definition for variable costs
Variable expenses are everyday spending decisions such as eating out, shopping, ordering coffee, and playing golf with friends.
These costs are not variable as they are discretionary. You can’t consider the amount you spend each month “variable.”
Variable expenses can be used to fund discretionary activities such as dining out at restaurants, Starbucks, or golf.
Typically, families spend variable amounts on groceries. You’ll likely spend different amounts on gasoline and car repairs.
Variable Fixed Expense: Savings
If Saving money should be a priority, variable expenses are difficult to cut as they involve daily financial decisions.
Fixed costs such as your cell phone, service, or cable package, can be reduced by making one decision and then sticking with it for months or even years.
Every day, you must make many decisions about whether or not to purchase certain items or take part in particular events.
The bottom line
Reexamining both fixed and variable costs can help you cut down on your expenses.
Lower variable costs and monthly fixed expenses to save more for retirement.
Frequently Asked Questions (FAQs)
What is a periodic fixed cost?
Period expenses are those costs that are repeated often, but not every month. You need to plan and budget to be able to pay these expenses consistently.
You don’t need to plan for variable expenses when you can plan for fixed expenses
Fixed costs make up the bulk of your budget. These expenses are simpler to plan for.