When you’re making a budget, there are two columns: income and expenses. A large majority of those expenses don’t change from month to month or change very little. These are fixed expenses. If you’re trying to cut costs, you may find that the fixed expenses are difficult to reduce. Why is that? How do you reduce fixed expenses?
We’ll explore the answer to those questions, among others, in today’s post.
Types of expenses
There are two types of expenses. Fixed and variable.
As the names suggest, fixed expenses don’t change or rarely change. Generally speaking, fixed expenses are the largest, recurring expense. Things like your rent or mortgage, utilities, internet, streaming/cable, debt payments, and insurance are all part of your fixed expenses.
Variable expenses, on the other hand, are constantly changing. There isn’t a bill or invoice you get every month. A variable cost is paid by your own directive. Things like groceries, “fun money”, and the like are variable expenses.
Fixed expenses rarely change or vary slightly, and someone or some entity is looking for a payment. Variable expenses constantly change and are voluntarily paid.
Why are they so difficult to reduce?
When you first “sign up” or “agree” to these expenses, more often than not, you’re already shopping for the lowest price for that item.
What else? Internet, streaming, and cable have a pretty standard rate when compared to competitors. Debt payments are structured by the length of the term, interest, and (when referring to credit cards) minimum payments.
Basically, the costs are what they are, and they don’t vary a whole lot.
Methods for reducing fixed expenses
Mortgage payments could decrease if you refinance at the right time. Utilities could go down if usage goes down. Insurance premiums could go down if you mess with coverages and deductibles, but I advise you to talk with an agent first.
Cable/dish generally increases after one year. Often, you get an introductory rate for the first 12 months. If it goes up too much, call and complain or threaten to leave. Normally, they’ll oblige and agree to lower your monthly bill.
If you have a debt to pay and money is tight, talk with your lender or credit card company. Let them know about your situation and they might be willing to work with you.
Related reading:
Save Money on Your Household Expenses
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Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.