How To Budget for Fixed Expenses

When building your monthly budget, it can be helpful to start by considering your fixed expenses. Since these recurring costs are generally quite predictable, they’re easier to plan for, giving you a clearer picture of how much money you have to spend on the rest of your budget items. By understanding how to budget for fixed expenses, you can ensure you’re able to meet your financial obligations and also plan for variable expenses and savings.

Here’s what we’ll cover:

• Understanding fixed expenses

• Budgeting for fixed expenses

• Saving on fixed expenses

What are fixed expenses?

Fixed expenses are those whose costs and schedule remain relatively constant over time. Consider the items in your budget that rarely change in price and come up on a regular, predictable basis. Fixed expenses are often monthly costs, like rent or bills, though you might have fixed expenses that occur more or less frequently. 

Examples of fixed expenses

When planning how to budget for fixed expenses, you’ll want to look at your own spending to identify the specific costs to plan for. To get you started, consider these common examples of fixed expenses. 

• Rent or mortgage: In most cases, these costs stay the same for a year, though they may change more frequently if you have a shorter lease term or your mortgage lender adjusts your escrow payments. 

• Loan payments: The monthly payment is usually the same for the entire term of fixed-term, fixed-interest debt like personal loans, car loans, and student loans.

• Credit card payments: If you’re not adding more to your balance, your monthly minimum payments are likely to stay about the same on credit cards.

• Insurance premiums: Premiums for health, auto, homeowners, and renters insurance plans are often the same for a set term, often six months or a year. They’re typically billed monthly, biannually, or annually.

• Phone bills: Most mobile phone service plans are a fixed expense each month, but be aware that your monthly bill might go up in some circumstances, like a change in taxes or going over plan limits.

• Subscriptions: The cost of streaming platforms, gym memberships, software applications, and other subscriptions is generally the same each month, though service providers may increase rates at any time.

• Internet service: Like phone plans, internet plans are usually a fixed expense each month, but might vary a bit from month to month based on tax changes or exceeding usage limitations.

• Childcare costs: Regular, planned childcare costs may be fixed expenses for the course of a specific term or school year. These fixed expenses may include things like daycare, tuition, after-school programs, or nannies.

Fixed vs. variable expenses

In contrast to fixed expenses, variable expenses change depending on consumption or usage patterns. Common variable expenses include groceries, utility bills, and entertainment, all of which can vary from month to month based on your lifestyle choices and habits. Understanding this distinction not only helps in creating a more accurate budget, but also highlights the areas where you have the most control. By monitoring your variable expenses, you can make informed adjustments to save money and enhance your overall financial health.

Essential vs. non-essential fixed expenses

When you’re budgeting for fixed expenses, it’s helpful to understand the difference between needs vs. wants. Fixed expenses can vary significantly in their importance and necessity. Some are essential for daily living, such as housing, insurance, and a phone, as they provide the basic necessities for survival and comfort. Those can be classified as needs. Other fixed expenses, however, might be non-essential yet still recurring and predictable, like subscription services or memberships. You can classify these fixed expenses as wants: things enhance your convenience or enjoyment, but are not crucial for day-to-day functioning. 

It’s beneficial to separate fixed expenses based on needs vs. wants to help prioritize your spending. This allows you to identify discretionary spending within your fixed expenses so you can make informed choices. If an expense is fixed but not essential, you might be able to cut that cost in order to prioritize savings or some other financial goal instead. 

How to budget for fixed expenses

Budgeting for fixed expenses allows you to identify all your predictable financial commitments and ensure you have them covered, then allocate the rest of your income to variable expenses and savings. Making a budget for all your fixed expenses also helps you account for irregular but predictable fixed expenses that come up infrequently, so that you’ll have the money for them when needed. Finally, when you learn how to budget for fixed expenses, you can implement strategies to minimize the stress associated with managing regular payments. 

Step 1: Identify your fixed expenses

Start by identifying all your fixed expenses, looking at your past bank statements and bills to pinpoint these costs. Write down each expense, its frequency and the exact amount you need to pay.

Note that while many fixed expenses recur on a monthly basis, not all do. Costs that present themselves on an quarterly, biannual, or annual basis still benefit from careful budgeting to ensure you can meet them when they arise. To effectively budget for these less frequent expenses, follow these steps:

• Identify non-monthly expenses: Start by listing all irregular fixed expenses. Take note of how often these expenses occur and their typical amounts. You might want to look back over the previous few years to identify any patterns or specific costs that have come up. Keep an eye out for infrequent expenses like quarterly oil changes, biannual insurance premiums, annual subscriptions, or vehicle registration costs that occur every couple years.

• Create a sinking fund: Calculate the annual total of these less regular expenses and determine how much you need to save on a monthly basis to cover them. For instance, if your annual insurance premium is $1,200, you should set aside $100 each month. Each month, transfer this monthly amount into a sinking fund stored in a savings account so you don’t accidentally spend the money. This proactive approach ensures you’ll have the funds available when the expense is due.

Step 2: Allocate funds for fixed expenses

When you make your budget, allocate funds for your fixed expenses before anything else, setting aside the exact amount needed for each fixed expense in a separate budget category. Since many fixed expenses are necessities, like housing and insurance, budgeting for them first ensures that these payments are always covered. It also makes budgeting easier, since the amount you need to put toward fixed expenses is usually the same every month, so a large swath of your budgeting work can be carried over month after month.

Step 3: Adjust your budget for non-essential fixed expenses

Just because an expense is fixed doesn’t mean it’s critical. Whether you need to tighten your belt to cover necessities or want to put more money toward saving money each month, it’s helpful to determine how much you can reduce your spending by shedding non-essential fixed expenses. Review your current fixed expenses and determine if you could eliminate any, such as streaming services you rarely use. Prioritizing your needs over your wants empowers you to ensure your essential expenses are fully covered and devote more money to things like getting out of debt, creating an emergency fund, or working toward your savings goals.  

Once you’ve created a budget for fixed expenses, you can allocate your remaining income to cover your variable expenses and savings.

Step 4: Automate payments for fixed expenses

It’s easier to stick to your budget for fixed expenses when you automate the process as much as possible. Set up automatic bill pay through your service providers or using your bank’s online bill pay options. That way you’re less likely to forget about a payment, which can leave you with a late fee and may even damage your credit score. If you’ve set up a sinking fund for irregular fixed expenses, you can even schedule an automatic monthly transfer into your savings account so you don’t accidentally spend the money. 

While automation makes budgeting for fixed expenses more convenient, be sure to monitor your account regularly. Check your bank account before each scheduled bill payment to make sure you have enough money to cover it. 

How to save on fixed expenses

Since fixed expenses recur regularly, even small savings in these categories can add up over time. By reducing how much spend on fixed expenses, you can free up funds for other financial goals and make your budget more flexible. 

• Refinancing loans: Evaluate your existing loans and explore the option of refinancing to secure a lower interest rate or reduce your monthly payment. This approach can be particularly beneficial for mortgages, student loans, car loans, and other fixed expenses that incur interest.

• Bundle insurance policies: Combining multiple insurance policies under one provider often results in cost savings. Contact your insurance company to discuss bundling options for home, auto, and other types of coverage.

• Negotiate bills: Reach out to your service providers to discuss the possibility of lowering your rates on fixed expenses like cable, internet, or phone plans. Many companies are willing to offer discounts to retain loyal customers, and they may have different plan options that would meet your needs for less.

• Review subscription services: Regularly evaluate your subscription services, such as streaming platforms, magazines, and fitness memberships, to determine which ones are still important to your lifestyle. Consider canceling or downgrading any that you don’t use often, and explore shared plans with family or friends to save money without sacrificing access to your favorite content.

How to budget for fixed expenses: consistency is key

Budgeting for fixed expenses helps you establish a clear plan for covering your regular, predictable financial commitments. Once your fixed expenses are accounted for, you’ll know exactly how much money you can devote to less predictable variable expenses, as well as plan to put money aside for savings. Then it comes down to consistency: tracking your spending, updating your budget each month, and sticking to your financial plans.  

Keep in mind that fixed expenses aren’t set in stone forever. Costs for fixed expenses usually increase at some point, so you’ll want to regularly review your budget and make adjustments. And as your lifestyle changes over time, you'll likely find that your fixed expenses will too. What should remain consistent is your budgeting habit. By adjusting your plans as circumstances change and continuing to work toward your goals, you can set yourself up for more effective money management and greater financial stability.