Put aside the proper amount each month for quarterly or semi-annual expenses as well. You can divide your annual periodic expenses by 12, then put aside the resulting amount every month. That’s why it’s extremely important to account for all periodic expenses in your budget. Being unprepared to cover financial obligations is how some people get trapped in a cycle of debt. You don’t want to get hit with a big annual bill, then panic and scramble to come up with the money. Periodic expenses are a bit more difficult to budget. You might forget about property taxes, back to school supplies, and your warehouse club renewal, though. You will not forget to account for your rent or groceries when you create your budget. They’re easy to forget, and they can vary widely.īudgeting for fixed expenses like rent and things we spend money on frequently is simple. Periodic expenses are harder to budget for. Examples include tuition, car registration, and annual membership fees. What Is a Periodic Expense?Ī periodic expense is a cost that appears irregularly rather than monthly. For more ways to reduce you housing costs, which are likely your biggest fixed expense, see: 23 Ways to Reduce Housing Costs. Spending $100 less in rent each month won’t likely impact your quality of life much, but it will save you $1,200 on a one-year lease. If you’re a renter, find a cheaper place. You could also move to a less expensive area or closer to work to cut fixed expenses. Shop around for lower insurance premiums, find lower-cost providers for necessary services you use, and consider refinancing your home or auto loan. How to Reduce Fixed ExpensesĮven though fixed expenses are consistent each month and might involve a contract, you can reduce your fixed expenses. These expenses are simple to budget for because they typically stay the same for at least a year and require regular payments. Here are some common examples of fixed expenses: You can sometimes lower fixed expenses by comparison shopping for better deals, switching service providers, or refinancing. They are expected, consistent, and can’t easily be changed. Typical fixed expenses include rent or mortgage payments, car loan payments, insurance premiums, and student loans. You might struggle to afford your fixed expenses, but they won’t surprise you. You’ll see they take up a large percentage of your budget. When you’re setting up your budget, your fixed expenses will be the first entries you make. You often have limited control and a legal obligation to pay your fixed expenses.įixed expenses are consistent and usually paid monthly. Fixed expenses will probably take up the largest percentage of your budget since rent, insurance, and car payments are fixed expenses. What is a Fixed Expense?įor household budgeting, fixed expenses are predictable costs with amounts and due dates that don’t change. Understanding these different types of expenses is important to creating a budget and managing your personal finances effectively. Variable expenses are often discretionary and can often be changed or eliminated by behavior. annually) and occur in predictable amounts. Periodic expenses are less frequent (e.g. Fixed expenses are recurring expenses that don’t change and are usually paid monthly. The three types of expenses in a budget are fixed, periodic, and variable. What Are the 3 Types of Expenses in a Budget? What Are the 3 Types of Expenses in a Budget?.If you’re creating your first budget, there are three types of expenses you should understand: fixed, periodic, and variable. I decided I needed to get on a budget to get my finances under control. That all changed when I realized that the purpose of a budget was not to torture or bore myself. My wallet was always empty at the end of the month. I had a vague notion of what my expenses were, but I always spent more than I thought I would. When a bill came in, I was never 100% sure I had the money for it. Once in a while, I’d go too far, to where paying rent on time became a matter of being late on some other bill. I would wind up struggling financially and not having enough cash to put gas in my car after paying rent. I would get paid, go have drinks with the guys, play a round of golf, and buy new sneakers or something else I didn’t really need. I didn’t know there were 3 types of expenses in a budget and I didn’t care. When I was just starting out, I would spend first and ask questions later. I never understood the importance of budgeting. I spent years living paycheck to paycheck. " xlink:href="# flipboard "> Share on Flip it Share on Twitter Share on Facebook Share on Pinterest Share on WhatsApp
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