The difference between fixed and variable expenses.

Definition of Fixed Expenses

Fixed expenses are costs that remain the same amount each month. These bills cannot be easily changed and are typically paid regularly, whether weekly, monthly, quarterly, or annually. Typical fixed expenses for a household include the following:

• Mortgage or rent payments
• Car payments
• Property taxes
• Insurance premiums

Saving on Fixed Expenses

The main lesson here is that despite being called “fixed,” fixed expenses are not set in stone. If you lose your job or want to start saving aggressively, you can dedicate a few hours to reducing your fixed expenses.

Since fixed expenses typically represent the largest portion of your budget, the money you save in this category can be significant.

Definition of Variable Expenses

Variable expenses represent daily spending decisions such as dining out, buying clothes, purchasing coffee at Starbucks, or playing a round of golf with friends.

• Groceries
• Dining out
• Fuel
• Entertainment
• Hobbies
• Personal care

Saving on Variable Expenses

Often, cutting variable costs is the first expense people try to reduce when they need to start saving money. Unfortunately, reducing variable costs is one of the hardest expenses to cut, as it requires a daily commitment to making decisions about how to spend money.

Conclusion

If you need to start cutting costs, look at your fixed and variable expenses. Dedicating some time on a Saturday to review all your subscriptions, monthly insurance plans, and recurring monthly bills can help you reduce hundreds of dollars from your fixed monthly budget.

If you can cut some variable costs in addition to your fixed monthly bills, you will be able to save more money to invest in retirement, build an emergency fund, pay off debt, or invest.

Frequently Asked Questions (FAQs)

What are periodic fixed expenses?
Periodic fixed expenses are those costs that are equal and recur regularly but do not happen every month (for example, quarterly). You need to plan and budget for them to pay them periodically when they are due.

Which should you budget for first, fixed or variable expenses?
You should budget for fixed expenses first, as they represent the largest portion of your budget and are typically stable over longer periods of time. Your variable expenses change monthly and can easily be adjusted and modified on the fly, so it’s easier to plan these expenses around your fixed expenses.

Is a mobile phone considered a fixed expense?
Because it is a bill you pay each month and it remains about the same, a mobile phone is considered a fixed expense. However, you can work on reducing your mobile phone costs to ensure that this fixed expense fits within your budget.

Source: https://www.thebalancemoney.com/what-s-the-difference-between-fixed-and-variable-expenses-453774

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