Total Expenses Vs. Fixed Costs

Fixed costs don’t change, making them easy to budget.
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Living by a budget doesn’t mean having to scrimp and count pennies. A budget can actually help you effectively plan your discretionary spending so you have enough for those trips to the salon or an occasional romantic getaway weekend at a bed and breakfast. How you categorize your expenses can determine how accurate your budget document will be, and breaking out your fixed and variable expenses will help you plan your spending and saving better.

Total Expenses

Your total expenses are the sum of your spending obligations, including items such as rent, utilities, credit card payments, groceries, car loan and insurance. Don’t forget to add the interest from your credit cards, even though they’re added to your balance and you don’t need to pay more than your minimum each month. If you have investments, learn what fees and taxes you’ll have to pay at the end of the year to avoid any surprises.

Fixed Expenses

Fixed expenses are those that don’t change. Some household budgeters consider only expenses with the same payment amounts each month as fixed expenses. These would include your rent or mortgage, student or car loan payment or cable or Internet bill. Some budgeters include regular recurring expenses, such as groceries or phone, as fixed expenses, using an estimated monthly average to create their budgets.

Variable Expenses

Many people consider any expense that changes each month, whether it’s a monthly or once-in-a-while expense as a variable expense. For example, you’ll have a utility bill each month, but the amount will vary, so this is often considered a variable expense. Your quarterly tax payments might vary if you are an independent contractor, based on how much work you bill each month.

Discretionary Expenses

Another way to look at your expenses is to classify them as necessary and discretionary expenses, regardless of whether they are fixed or variable. This will help you more quickly determine where you can cut your spending when you’re short on cash. For example, when money is tight, you can look at your discretionary spending categories, such as dining out, movies, clothing, coffee or movie rentals. While you can’t stop paying your electric bill without getting turned off, you can forgo your latte fix or pizza deliveries. Remember your 401(k) contributions are discretionary, and you can lower or eliminate them when you need more money now.

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