How to Factor Fixed Expenses into Your Budget

Everyone has expenses. It doesn’t matter if you are a manual laborer or a millionaire, everyone has income and expenses.

Now, you may wonder if all your expenses are the same. You think that at the end of the month a part of your money goes to meet all your expenses, and that all expenses are the same. However, that is not the case! 

These can be divided into:

1. Variable income

2. Fixed income

Now, in a previous article, we have told you about Variable Expense. In this article, we shall tell you what are fixed expenses, and how to factor them into your budget.

What are Fixed Expenses?

These are expenses that occur regularly and do not change in their value. For instance, if one of your fixed expenses is Rs. 100, it won’t change to Rs. 200 next month. The variation happens in case of your Variable Expenses, which are unpredictable in nature.

Want to get some good examples of fixed expenses? These include insurance and mortgage payments, utility bills, and car insurance payments.

Fixed Expenses and Needs

Some people think that Fixed Expenses and Needs are synonymous. The thing is that not all fixed costs are your necessities. For instance, things like subscriptions and paid memberships are fixed expenses, but these are Wants, not Needs. You may be able to do without them.

Since these are by nature repeat costs, these are easy to budget for each and every month. You do not give much thought to these costs. These are easy to factor into any budget. Because of this nature, these expenses are easy to create an automatic bill payment schedule around.

Here’s how to track your fixed expenses

Fixed expenses have another advantage over variable costs: these are easier to spot on your balance sheet! Just one glance and you know which ones are recurring fixed costs. However, you may not know how much you are putting on these costs collectively, or if this amount actually fits into your budget or not.

For this, you need to track your spending. You can use a normal spreadsheet or even a free app if you want to keep track of things. You can even keep track of things by looking at your bank statement. There are many budgeting apps and some bank websites which break down your expenses. These also break down your transaction history by nature of the expenses.

With this done, you can add your fixed costs to see the total money you have to pay for fixed costs per month, and how much is left after that to tackle other expenses.

Some experts say that fixed costs need to be paid first. That being said, your budget should also have a place for Variable Expenses.

Save money by refining your budget

But how much of your income should you be spending on your Fixed Expenses? This depends on your comfort level and how you have classified them. But you still need to spend less than you earn. mymoneykarma advises you to adopt the 50/30/20 budget formula.

Things like rent which are your Needs should be allocated 50% of your monthly income. 30% of your wants should be allocated to meet your Needs. 20% are for debt payments and savings.

The name Fixed Expenses can be confusing to some. You may think that just because these are called fixed expenses there is no room to adjust things. The truth is that it is in your power to adjust a bit by negotiating prices and by exploring alternatives, but only in some cases. For example, you can save on car insurance, lower your cable bills, have lower power bills by consuming less electricity, and etc.

In case you are spending more than what is comfortable on fixed expenses, think about cancelling those services that you no longer need, or can do without in case money is a problem at present.