Fixed Expense

Fixed Expense Definition and Meaning

Fixed expenses are the predictable costs within your budget, such as your rent and car payment. You agree to a fixed price and payment schedule for the expense, and the cost remains consistent over time.

Key Aspects of Fixed Expenses

Expenses can be either fixed or variable. Fixed expenses are those that cost the same amount each time you pay. For example, if you have a mortgage, your mortgage payment will generally remain the same every month unless you refinance the loan.

Variable expenses, such as groceries, change regularly. You probably have an idea of how much your variable expenses cost, but the price isn’t locked in like it is with fixed expenses.

Many fixed expenses are monthly bills, but there are exceptions. You may have bills you pay every six months or once a year, such as insurance premiums or membership fees to warehouse clubs. These are generally still fixed expenses, because you pay the same amount each time.

Keep in mind that even fixed expenses can change, but the creditor or service provider typically has to notify you first. A subscription service can’t charge you a new rate every month, but the service provider could decide to increase the monthly fee.

Real-Life Examples of Fixed Expenses

Here are some common examples of fixed expenses:

• Rent

• Mortgage payments

• Car payments

• Insurance premiums

• Phone and internet service

• Subscription services

• Membership fees

• Daycare

How to Budget for Fixed Expenses

To build an accurate budget, make a list of all your fixed expenses. Remember to include not just monthly bills, but also any fixed expenses you pay less frequently. Go over your banking and credit card statements to make sure you have everything.

Add your monthly fixed expenses directly into your budget. For non-monthly bills, divide the payment amount by the number of months that payment covers to get the monthly cost. For example, let’s say you pay $400 every six months for insurance. The monthly cost would be: $400 / 6 = $66.67 per month.

Of the two types of expenses, fixed expenses are easier to plan for in your budget. Variable expenses require that you estimate how much you’re going to spend, but you can usually get a fairly accurate number if you look at your receipts or transaction records for these variable bills in the past.

When you’re going to take on a new fixed expense, or when one of your fixed expenses is going to change, check your budget first to see how much you can afford to spend. Aim to have enough money to pay for all your fixed and variable expenses—and also have money left over to save. If you use your budget to decide your fixed costs, it will be easier to keep yourself in a comfortable financial position.