A bill with a fixed cost that must be paid on a regular basis is referred to as a fixed expense. Budgeting for fixed expenses is simpler because they remain constant. For instance, fixed expenses include your mortgage, loan payments, and property taxes.
Main Points
A bill that doesn’t change from month to month is referred to as a fixed expense.
Examples of constant expenses are your mortgage payment, insurance payments, and child care bills.
The frequency of fixed expenses can be weekly, monthly, quarterly, or yearly.
Depending on usage, variable costs differ from month to month.
Variable costs include things like food expenditures, utility bills, and medical expenses.
How Do Fixed Expenses Operate?
By creating a monthly budget, you can manage your money the best. Any budget line item with a small range in the amount is considered a fixed expense. Your gym membership and mortgage payment, for instance, will likely remain the same.
The amount of these payments is consistent and made at regular times. You can have set costs that you pay every week, every month, every quarter, or every year.
Note
The 50/30/20 budgeting guideline is a good option if you’re seeking for budgeting tactics. According to this budgeting strategy, you should set aside 50% of your after-tax income for needs, 30% for wants, and 20% for savings. This guideline might assist you in creating a realistic budget that you can follow.
A fixed expense example
Here are a few instances of fixed costs:
- Rent or mortgage payments
- Paying back loans
- Childcare expenses
- Tuition is paid.
- insurance costs
These costs can be deemed fixed expenses even if they don’t come due every month. Let’s imagine, for illustration, that you pay a life insurance premium on a quarterly basis. The fact that the expense is constant means that it would be a fixed expense.
Note
Consider creating a sinking fund if you’re seeking for a solution to budget for sporadic variable expenses, such as buying Christmas presents. A sinking fund is a savings account set up for a projected expense in the future. This can assist you in preventing the use of your emergency fund or credit cards for recurring expenses.
Comparison of Fixed and Variable Expenses
| FIXED EXPENSES | VARIABLE EXPENSES |
|---|---|
| Costs stay the same each month | Costs change each month |
| Examples include rent, insurance premiums, or memberships | Examples include utilities, food costs, and entertainment |
| Tend to account for a larger percentage of your budget | Many variable costs are still necessary expenses |
There are two main categories of expenses you’ll come across when making your monthly budget: fixed and variable. Your rent or mortgage payment and any recurring membership fees are examples of fixed costs. Variable costs, in contrast, are budget items whose value fluctuates each month. Your utility expenses, for instance, will vary each month based on usage.
Variable expenditures are still significant even if fixed costs often make up a bigger portion of most people’s budgets. Numerous variable expenses, including food and power, are crucial budgetary issues.
Note
Start by figuring out ways to reduce both your fixed and variable expenses if you want to save money each month. Fixed expenses can be more difficult to change, whereas variable costs are typically simpler. You can easily change your spending on food and entertainment, but you might need to relocate or refinance to change your monthly rent or mortgage payment.
Questions and Answers (FAQs)
What kinds of costs are fixed expenses?
Budget items known as fixed expenses are those whose amounts are fixed and which are paid at regular times. Here are a few instances of fixed costs:
- Rent or mortgage payments
- Paying back loans
- Insurance costs
- Childcare expenses
- Tuition costs
Budgeting for these expenses each month is simpler because they remain constant.
What kind of expense is not a fixed one?
Any expenditure that isn’t a fixed expense is referred to as a variable expense, which denotes that the sum varies from month to month. For instance, since utility bills are based on usage, they are seen as variable expenses. These include any unforeseen monthly costs, such as an unanticipated medical payment or an emergency auto repair.
Is food an ongoing cost?
Food is regarded as a variable expense since, for the majority of people, their food budget fluctuates from month to month. Although we frequently consider variable expenses to be superfluous and fixed expenses to be important, it is obvious that eating is a required expense! You may more efficiently plan by keeping track of these expenses in your budget. By doing so, you’ll have a better idea of how much you’re spending on meals.
