Fixed expenses are generally items or expenses that don’t change and cannot be avoided. Such items are typically paid in a monthly or yearly basis.
Examples of fixed expenses include:
- Utility bills
- Car loan payments
- Subscription Services
Fixed expenses are also commonly known as your needs. Having said that, not all fixed expenses can count as part of your needs. For instance, your monthly subscription to a magazine or streaming service cannot be considered as one of your necessities.
Although variable expenses tend to be easier when it comes to minimizing cost, fixed expenses are somewhat easier to factor into your budget since they must be paid on a regular basis. Essentially, this means that you can have more control reducing your expenses when it comes to variable expenses whereas with fixed expenses, you need to completely consider such items in your budgeting.
If you still have no idea why it is harder to reduce fixed expenses, you will probably learn a thing or two with our help. Moreover, we also covered some effective ways for you to reduce your fixed expenses down below.
What are Fixed Expenses? And How Do They Differ from Variable Expenses?
Expenses are generally divided into two parts, namely:
- Fixed Expenses
- Variable Expenses
If you want to completely comprehend the difference between the two and understand why fixed expenses are much harder to deal when it comes to minimizing cost, you have to learn the nature and behavior of such expenses.
To put it briefly, a fixed expense is a cost that remains the same in each month or year. Although they’re typically paid in a monthly or annually, fixed expenses can also be paid weekly and quarterly. Moreover, they are usually paid at the start or end of the month.
Since the cost of a fixed expense doesn’t change, budgeting for fixed expenses is a lot easier task compare to predicting variable expenses. Fixed expenses tend to be easily estimated and there’s a good reason why. Fixed expenses are predetermined. However, it can take while or some much-needed time for you to reduce your fixed expenses.
For instance, if you’re a student and you want to save up some money from your rent payments, there’s a lot for you to consider before moving out. You will need to check the new neighborhood, find a new roommate, and adjust some parts of your lifestyle. If you consider the time you’ll need to research and consider, you’ll realize that fixed costs are more difficult to reduce when compared to variable costs.
In contrast to fixed expenses, variable costs are not fixed. Also, variable costs represent the amount of money you spend on non-essential items. So, if you’re doing something like shopping, eating at restaurants, or buying new clothes, you are spending on variable items.
Simply put, variable expenses are expenditures that differ in cost every period. Even though they’re generally for non-essential items, there are certain necessities that can be part of your variable expenses. A common example is your grocery spending. Since market prices of raw meat, vegetables and other products change from time to time, your expenses for such items also differ from one period to another.
Another example you could look at is the needed fuel for your car. Since oil prices often drop or increase, you’re not going to spend or incur the same amount for fuel or gas each month.
Reducing Fixed Expenses
It’s very hard to cut down on fixed expenses especially if you’re not willing to put up some hard work or adjustments to your life. However, reducing your fixed expenses is possible. Having said that, it may take a longer time for you to come up with solutions as to how you can reduce your fixed expenses.
If you want to be more economical with your monthly spending, you can easily cut down your spending if you focus on reducing your variable expenses. Keep in mind that variable expenses are much easier to reduce since you will have more control with what you’re spending on.
Different Ways to Reduce Fixed Expenses
Although the process of reducing your fixed expenses may take more time and effort, it’s still doable to save money from such expenses. If you want to know more how to substantially reduce your fixed expenses, here are different ways to reduce it.
The first thing you need to do is to identify your fixed and variable expenses. You can list them out in a piece of a paper, or you can even list them in a software like Excel. Having an overview of all your expenses will give you the much-needed information you need to adjust or plan out your spending. And besides, maybe you’ll cut down on some significant variable expenses that you didn’t know of.
Avoid Overpaying your Insurance
Another thing you might need to look at is your insurance. If you’re paying too much for a certain type of insurance, you’re going to miss out on other cheaper options. Although looking for better insurance rates may take a considerable amount your time, you will save a lot of money in the long run.
Cancel Any Unnecessary Subscriptions
There are a lot of subscription services these days and it can be a little hard to keep track for some of them especially when it comes to online services such as apps or websites. Having said that, if you really want to significantly reduce your fixed expenses, don’t forget to cancel any unnecessary subscriptions you have.
Take a Closer Look at your Utility Bills
Besides your insurance and your subscriptions, you should also check out your previous utility bills. Since you probably have multiple utility bills, take a closer look at some items you can live without. For instance, if you’re rarely using your cable, you might want to cancel your cable. If you can, you should also consider a cheaper cell phone plan. The clear plan here is to minimize the amount of money you spend on utility bills.
If you are starting to understand the differences between variable and fixed expenses, you will learn how to save more money from all your monthly expenses. However, it’s very helpful that you track, manage, and organize your spending. By doing so, you will have an easier and better way of saving up money.