Are You Forgetting about Fixed Expenses?
When it comes to building a budget, there are two main components to consider, and you probably already know them: your net income and your expenses. What is less well known is that, when calculating your expenses, you need to determine your variable and fixed expenses.
There are several reasons why you should build a budget, and while it might seem a scary thing to do, it’s easier than you think. Budgeting is a way to manage your money better, and it doesn’t have to be restricted. A recent survey has shown that fewer and fewer Americans are budgeting this year. Are you one of them? This article is part of a series aimed at helping people build a budget.
What Are Fixed Expenses?
The definition of fixed expenses is a simple one. They are expenses that are regular and stay the same. You might pay these expenses weekly, monthly, quarterly, or on an annual basis. Fixed expenses are easy to budget for because you know the amount is not likely to change. Fixed payments include things like a mortgage (or rent), loan, and utility payments. Below is a comprehensive list of fixed expenses you might need to take into account when building your budget.
- Rent payments or mortgage
- Property taxes
- Real estate insurance
- Utility bills (e.g., electricity, water, phone, cable, etc.)
- Car payment or lease payment
- Insurance (health insurance, disability insurance, life insurance, vehicle insurance, etc.)
- Debt repayments, if you have a debt consolidation loan
Fixed Expenses in a Small Business Budget
Building a monthly budget is crucial if you run your own business. It’s just as important as a monthly income statement. Much the same as if you were building a personal budget, an accounting business budget requires you to break down your expenses into variable and fixed costs. Fixed expenses stay the same, month after month, and there’s not a lot you can do to change them. However, making savings is something you can do. Making cuts, in whatever ways you can, is going to impact your profit, revenue, and the cost of goods sold. We’ll look at some of the ways you can save money a little later in the article. Examples of fixed costs for businesses include the following:
- Lease or mortgage payments
- The cost of purchasing business equipment, such as machinery, furniture, and vehicles
- Business loan payments
- Utility payments
- Web hosting
- Insurance costs
- Credit card fees
- Depreciation expenses
- Operating expenses
- Employee salary
Fixed vs. Variable Expenses
Variable costs are a little harder to account for. Typically, they change and can also be discretionary costs. Utility bills can be variable expenses if you’ve not signed up for a payment plan. If you have and are paying the same amount every month, you can include them as fixed expenses.
Below are some examples of the variable expenses you might be paying:
- Weekly groceries
- Car repairs and maintenance
- Personal grooming services
Your variable expenses are a representation of the daily spending decisions you make. For example, should you spend an hour in Starbucks for your lunch or bring something from home? If you want to relax this weekend, is it an afternoon with your besties at the bowling alley or some quiet time at home with a book? There are plenty of ways to relax without spending a dollar.
When it comes to variable expenses, a certain amount of personal choice comes into play, especially if you want to look for ways to reduce these expenses.
To alter your variable expenses, you have to look at ways to adjust your spending patterns. Look at the things you’re spending your money on and decide whether they’re a necessity. It’s easy for your variable expenses to spiral out of control. Before you know it, you’ll be struggling under the burden of debt.
Top 10 Tips for Reducing Your Fixed Expenses
Feeling trapped by your fixed expenses is a common problem, but there are ways you can reduce them. Here are ten ways you can cut your fixed costs, leaving more money to keep in a savings account and for covering unexpected expenses in your emergency fund bank account.
1. Cut Your Cable Bill
One of the quickest ways to cut your cable bill is to ditch it altogether. However, for many, it might be considered a step too far. For millions of people, cable TV is a part of their daily life. If you don’t want to forgo all the latest cable shows to save a few bucks, contact your provider. Hint to them that you might be considering changing to Netflix or Hulu, for example. Cable company sales teams are keen to keep their loyal customers and might offer a discount for 6 or 12 months. Another offer might take the form of removing certain charges from your month to month bill.
2. Renegotiate Your Cell Phone Plan
We’ve come to rely on our cell phones, but we pay a lot for the privilege of having them. The phone itself can be acquired at a low cost if you’re not too concerned about owning the latest version of the iPhone. What costs you most is the calling and data plan. It is, however, possible to lower your cell phone bill today.
Did you realize what you were signing up for when the sales assistant handed over your new phone? There are likely to have been many features that appeared very attractive at the time. However, six or twelve months down the line, you might have realized you don’t need unlimited text messages, an extended data plan, or an additional phone line.
Take a look at your cell phone contract, and don’t be afraid to get in touch with your provider and renegotiate your deal.
3. Look for a Better Deal on Your Home and Auto Insurance
If your home or auto insurance is up for renewal shortly, it’s a good idea to shop around. If your current insurer runs a loyal customer program, you might already have the best possible deal. However, don’t assume you do; instead, spend some time looking at other insurance providers.
Check the coverage you already enjoy and then call around and ask for quotes. If you’d rather, it’s perfectly acceptable to request quotes online. Go back to your current provider with any lower rates and ask if they’re prepared to match it. At the same time, check whether there are any discounts which you might be able to take advantage of. For example, a family discount, a good driver discount, or a discount for having your home and auto insurance with the same company.
4. See if You Can Get a Discount on Your Rent
Ask your landlord if there’s something you can do in exchange for a reduced rent rate. They might be prepared to let you landscape the gardens around your apartment block, for example.
If you own a home and are paying a mortgage, consider renting out one of your spare rooms for some extra cash.
5. Consider Refinancing
If you’re a homeowner, there’s also the option of refinancing. The interest rate might have changed since you first took out your mortgage. There might be a better rate available. Mortgage rates are at an all-time low at the moment, so why not make the most of it and reduce your monthly expenses at the same time.
6. Reduce Your Energy Usage
There are 101 ways you can cut your energy usage. Not only will this reduce your monthly bills, but it’s also a way of helping preserve the planet’s valuable resources.
7. Consolidate Your Debts
Finding yourself in debt and struggling to keep up with the payments is a terrifying scenario in which to find yourself. For many people, consolidating debt is one way out of the problem. A debt consolidation loan can help you gain control of your finances and make your debt payments more manageable.
8. Review Your Business Insurance
Business insurance is crucial for small business owners, but there are ways you can reduce your insurance premiums. One good example is to install a security system, as this might make your insurance provider reduce your premiums. Installing a sprinkler system might reduce your fire insurance. You could also try to negotiate a discount with your provider if you’ve made no claims within the last couple of years.
9. Reduce the Amount of Water You Use
You have to pay for the amount of water you use, so it makes sense to look for ways to reduce the amount of water you use. Not only will this reduce your water bill, but, again, you’ll be using less of the planet’s valuable resource.
10. Regularly Check Your Fixed Expenditure
This last tip on the list is essential, whether you want to save money or not. Keeping close track of your expenses, both fixed and variable, is crucial. If you’re not careful, your costs can creep out of control, and it won’t be long before they exceed your income. It’s much better to be aware of where and how you spend your money. While it’s possible to regain control if you lose it, it’s much better to be in control all the time.
Are you currently building a budget? Are you excited to see how you’re spending your money, or are you a little nervous? If you’ve been budgeting for some time now, perhaps you’ve got some tips you’d like to share. Take a few minutes to leave a comment, because we enjoy hearing from our readers.