fixed expenses

Best Money Tips: How to Reduce Your Fixed Expenses

Ashley Jacobs — Wed, 27 Nov 2013 11:00:07 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some awesome articles on reducing your fixed expenses, best Kmart Black Friday deals, and hosting a stress free Thanksgiving.

Emergency belt-tightening

Philip Brewer — Fri, 07 Nov 2008 23:33:47 +0000

Typical personal finance advice would have you divide your budget categories into two groups: Your fixed expenses and your discretionary expenses. I generally don't like that distinction much--how is your power bill more fixed than your grocery bill? When you reach the point of emergency economizing, though, it's a useful way to structure your thinking.

Fixed expenses can be reduced, but those reductions often require long lead times (waiting for a lease to run out, so you can move to a cheaper place) or they require an upfront investment (buying a more energy-efficient refrigerator). Even when you can cut them, it's generally not practical to reduce them to zero, (except for those few people living off-the-grid).

So, in a financial emergency, the first place to look is at your discretionary expenses.

Start with zero

If you've got a budget, go through the non-fixed expenses and plug in zero for every number. Then, go back and adjust up the ones that are really essential. (Starting from zero and just budgeting what your household needs is, by the way, always a good idea.)

You've got to have food. In an emergency, though, you can cut your food bill by a lot more than you probably think. (And, as a bonus, cheap eating is probably healthier than what you were eating before, even if it may have to be less organic and less local.)

You've got to stay healthy. If you've got medical insurance, keep it in effect if you possibly can. If you're being treated for a medical condition, call your doctor's office and inquire if the treatment you're getting is the lowest-cost treatment that's available. (The phone conversation--typically with a nurse or physician's assistant--will probably be free.) In a financial emergency, it probably makes sense to delay even things that are important, if they're not urgent--eye and dental exams, routine check-ups, etc.

If you've still got a job, you probably need transportation. In an emergency, though, you should zero out any transportation expense that isn't earning you money. Every trip should be either to work or from work, with stops for errands along the way and not trips of their own. Reducing the number of cars your household supports can save a huge amount of money--each car costs thousands of dollars a year in fuel, insurance, and financing expenses. Consider things like carpooling, public transport, walking, bicycling, and so on.

Education is tricky. If you're not in school, zeroing out your education budget doesn't save you much money. If you are in some sort of degree program, disrupting it might reduce your future earnings by vastly more than you're saving--and yet, that might be the right choice in an emergency. On the other hand, if financial aid is paying most of your education expenses, or if your health insurance depends on your being a full-time student, your education expense may be too good a bargain to pass up if you can possibly afford it.

Debt payments generally can't be escaped, except by filing bankruptcy, which is obviously a last resort. There may be a few exceptions--student loans can be deferred under certain circumstances, there are moves afoot to develop programs for restructuring mortgages. For debts that are tied to some specific thing (such as a car), consider selling the thing and putting the money toward the loan. Doing that will generally leave you out of pocket, but getting the monthly payment off your back can still leave you ahead--the sort of hard choice you sometimes have to make in an emergency.

That's about it. Every other discretionary expense should go to zero: recreation, eating out, vacation, travel, clothes, shoes, etc.

Defer what you can't avoid

Many expenses that can't be avoided can be deferred in an emergency. Generally, don't replace (or pay to repair) things that break or wear out. For example, instead of getting a broken dryer fixed, dry your clothes on a drying rack until the emergency is over. (As a bonus, the clothes will last longer.) You probably can't get away without fixing your furnace or hot water heater, but you can get by without lots of things that you're used to using every day--microwave, toaster, TV, stereo, iPod, etc. Make them last as long as you can, but when they go, do without until the emergency is over.

Sometimes proper maintenance will save a lot of money in the long run if done promptly--replacing a roof before there's water damage--but in an emergency, it's often necessary to accept that you won't be able to make the choice that's cheapest in the long run, because you're short of cash in the short run. That's the nature of emergencies--you do what has to be done, and then do what you can to mitigate the harm after the emergency is over.

Ask for necessities

If you have relatives who give you gifts, ask that they give you necessities instead of luxuries. Nobody wants to get socks and underwear for Christmas--except people with holes in their socks and worn-out elastic in their underwear.

Use your time

If your financial emergency is due to the loss of a job, you've now got time that you didn't used to have. Some of it--most of it--should probably go toward finding a new job. But there's still time that can be used in place of spending money. Cook cheap meals from scratch (much cheaper than prepared meals). Do stuff around the house that you might otherwise have hired someone else to do. See if you can't do stuff for neighbors--helping in their garden, showing them how to create a website, and tutoring their kids can keep you on a more even footing when they're sharing produce from their garden, giving you rides into town, and letting you use their tools. Make things (sweaters & scarves, jellies & jams, beer & wine, cakes & pies) that you can give as gifts or barter for stuff you need but can't make.

Look ahead

Don't dismiss the fixed expenses entirely. For one thing, even small measures like adjusting your thermostat and turning off lights you're not using will definitely save dollars, even though they won't reduce your utility bills to zero. For another, even "fixed" expenses are only fixed in the short term. Depending on how long your emergency lasts, some (or even many) of your fixed expenses will become unfixed. Know when your lease is up, when your cell phone contract is up, when the term ends for your kid's private school. Look especially at annual fees that will get charged automatically if you don't cancel something. Figure out now when you'll have to put the wheels in motion in order to switch to a lower-cost option at the next opportunity.

If you're not in debt, it's pretty amazing how low you can push your expenses on an emergency basis, simply by zeroing out all your discretionary spending and deferring other spending (including essential spending) until the emergency ends. As in so many other areas of life, it's really debt that's the killer. In fact, I'd go so far as to suggest that, in the current economic situation, having any significant debt means that you're already in a financial emergency--even if you've got a good job and a solid emergency fund. I recommend some preemptive belt-tightening and getting that debt paid off.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Manage your fixed expenses

Philip Brewer — Sun, 17 Feb 2008 23:27:47 +0000

When you think of people ruining their lives with foolish spending, it's easy to focus on the little things that add up--the meals out, the hefty bar tab, the daily Starbucks habit, and the retail therapy (whether for new clothes, new shoes, or the latest must-have electronic gizmo). The fact is, though, that these expenses (although they can make it tough to save for the future) are not the ones that ruin people's lives. It's the fixed expenses that do that.

By fixed expenses, I mean any kind of expense that you can't immediately adjust if your economic situation changes. For example, the property taxes that you owe stay about the same even if your income drops--fixed expense. Your income taxes, on the other hand, fall automatically if your income drops--variable expense.

Typical fixed expenses

Most of your biggest budget categories (except for groceries) probably go to various sorts of fixed expenses:

Debt payments: mortgage, student loan, car payment, consumer debt...
Lease payments: apartment, car, self-storage unit...
Services contracts: cell phone service, burglar alarm service, lawn care service, fitness center membership...
Municipal fees: water, garbage, sewer...
Insurance: home, auto, health...

Relatively fixed

There are other expenses that, even if they're not actually fixed, are relatively fixed in the sense that you'd have to completely change your life or abandon something of considerable value in order to quit paying the money. Tuition, for example falls into this category--you could quit paying next semester, but doing so would mean abandoning your degree. For many people, child care is another example--eliminating that expense involves deciding that one parent will be out of the money economy for an extended period.

Also in this category are "circumstantial" expenses, such as a large monthly outlay for gasoline that could be changed, but only with some sort of major lifestyle change: a new job closer to home, a new home closer to work, or a some change in how the commute is handled (carpooling, using mass transit, bicycling to work, a more fuel-efficient vehicle).

Utility bills are often thought of as fixed, but some could be turned off in an emergency, and some of the rest can be reduced simply by using less of whatever the service is.

Good times versus bad

It's very easy to convince yourself to accept high fixed expenses. Something that you'd be able to afford someday (a big house, an expensive car, a big-screen TV) can be had now--and the extra cost may be perfectly reasonable.

For example, suppose you want a $1400 big-screen TV. You could save $114 a month in a high-interest savings account paying 5% and be able to afford it a year from now. On the other hand, if you borrowed the money at 12% and paid it off over the course of a year, you'd have to make monthly payments of $124. That extra $10 a month can seem very reasonable, if you think of it as what you're paying to have a big-screen TV for a year. And, after all, at the end of the year you've got a big-screen TV either way.

This sort of thinking, which does only modest harm during good times, is absolutely ruinous during bad times. A two-income family that suddenly has to get by on one income will succeed or fail entirely on the basis of its fixed expenses. If the fixed expenses are low enough that one income can cover them with enough left over for food, then everything will probably be fine. If not, the family sinks inexorably into debt.

The upside of bad times

In good times, it's very easy to feel like high fixed expenses are unavoidable. Many thrifty people spent years trying to save up enough money for a down payment on a house, only to have home prices rise even faster than they could save. They can be forgiven for thinking that they had no choice but to overextend themselves if they ever wanted to buy a house.

In bad times, that logic is largely reversed. Deciding to stay in an apartment for another year or two and save up a larger down payment will probably translate into more options, a nicer house, smaller payments, and a lower total cost. This is hard for someone trying to sell a house, but very nice for someone with low fixed costs.

Fixed cost illusion

It's easy to feel that you simply have to accept your fixed costs. They are, after all, fixed. This thinking is a mistake. Any of your fixed costs can be changed. Some of the changes require a long lead time. Others may entail some expense. Others can be changed cheaply, but only if you're willing to accept a changed (often reduced) lifestyle.

During good times, it's often possible to "grow into" high fixed expenses. A year or two of tight budgets and slightly precarious finances can--after a raise or two, after some consumer debt is paid down--leave one in a pretty comfortable situation. When bad times threaten, though, that strategy leads to disaster.

I don't know what direction things are going for the economy, but I think the risks are high enough that it's worth aggressively managing your fixed expenses:

Know what your fixed expenses are. If your budget has some fixed and variable expenses lumped together into the same category, break them out separately.
Know how long they're fixed for. Know when your cell phone contract expires. Know when your lease is up. Jot the dates down on your budget.
Make a plan for reducing them. The debt fraction can be reduced simply by paying down some debts, but consider more drastic changes. Consider moving to a cheaper place when your lease is up. Consider selling a car. Sell enough stuff that you don't need a self-storage unit. Save up enough cash that you can safely raise the deductible on your car insurance.
Create some contingency plans. What will you do if you lose your job? What will you do if your spouse loses his or hers? What will you do if the price of gasoline doubles, heating costs triple, and food costs just keep going up?

Contingency plan creation has a double purpose. Not only are they useful to have in case some particular misfortune comes to pass, they can provide some incentive to go back and put some oomph into your plan to reduce your fixed expenses.

Those little expenses that add up to keep you from paying down debt and saving for the future are a problem in the long term, but they don't lead to people being broke, homeless, or in bankruptcy. It's the fixed expenses that do that. Manage your fixed expenses, and you can ride out the bad times--and can safely indulge in some of those little variable expenses that give real pleasure.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Monthly Expenses We Don't Realize We Don't Need

Nora Dunn — Fri, 26 Oct 2007 15:57:03 +0000

When you put together a frugal budget, you are usually careful to make sure you're not spending money where you don't need to. But are you getting railroaded by expenses you are bearing which you don't even realize you can avoid? Here are a few you may want to consider paring down.

Television

Okay, for some people television is not an option — it is a necessity. And if you are one of those people, that's fine. But even so, it might pay to take a close look at exactly what you are paying for and whether or not you can take up some of the slack.

I had free cable for the longest time. It was simply a matter of moving in, plugging in the tv to the cable outlet to see if it would work, and blamo — it worked! I didn't have the heart to advise the cable company that I was getting free cable, so I just kept it. Of course a few months later, the cable company realized the error of its ways and cut the cable. I thought as an exercise I'd see how long I could last without it. And you know what? With the internet I could get all the news stories I wanted and more, and although I initially missed some of my favourite shows, I didn't miss them enough to go back to paying upwards of $50/month for them.

If you are not willing to cut out the television entirely, consider cutting some of the extra services or beefed-up channel selections you have. Personally, I found my life was immensely enriched by listening to more music, reading, and socializing instead of sitting in front of the tube.

Credit Card Insurance

I recently wrote a post going into more detail about this expense, but to sum it up, more often than not it is a superfluous expense for which the benefits do not outweigh the costs.

Coffee

As per the well-known Latte Factor , those cups of java can add up! Sure, it always tastes better when you get the local brew and don't have to clean the coffee pot at home yourself, but you're paying through the nose for this service. Not only that, but every time you take away a coffee, you're hurting the environment by disposing of yet another (albeit recycled) paper cup.

Bottled Water

I just paid over $2 for a 710ml bottle of water. It's water! Shouldn't it be free? Bottled water comes from many sources and is sometimes just filtered tap water anyway, and the plastic is of such poor quality that after 6 months of shelf life the plastic actually starts to break down and leach toxins into your water! Not to mention the amount of waste used bottles are producing.

With a little forethought and preparation, you can carry a sturdy glass bottle or thermos of tap water around with you and save the astronomical expense.

Lunch

Ever since I was a child, I brown bagged yummy lunches that I looked forward to. No baloney sandwiches here — I brought left-overs! When I became an adult, I always cooked enough for dinner to yield a lunch the following day. No time was wasted in the morning getting it ready - it was already in a re-useable container in the fridge ready to go. Most workplaces have a microwave, and even if they don't, I don't mind cold stew if it will save me $10 on a mediocre lunch eaten out.

Home Phone

For the last year, I have had nothing but my cell phone as my "land line". This has worked out just fine, and I haven't missed the home phone one bit. Most cellular plans have great features and promotions that will suit your specific needs (be they long distance, lots of minutes, or a good range).

Another consideration as an alternative to the home phone is the increasing popularity of voice over IP, where you can use your internet connection to call other computers, land lines, and cell phones. Some of these services are free (or partially free) like Skype, and others you will pay for depending on your needs.

Grocery Store

The more often you go the grocery store, the more likely you are to spend over your budget. When I went shopping religiously every Tuesday evening, I had a list I'd been working on throughout the week, and I stuck to it quite effectively. Then I moved to a place more conveniently located closer to the grocery store, and thought it would be neat to just buy the ingredients only a meal or two in advance.

It may have been fun to prepare meals inspired by what I saw as I cruised the aisles, but my grocery expenses also almost doubled as a result. Not only that, but I gained weight too! Sticking to a list can save a ton of money and grief.

These are just a few among the myriad of monthly expenses we don't realise we don’t need to be doling out our dollars for. What are some of yours?

This article is from Nora Dunn of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: