Fixed Expenses: The Backbone of Your Finances
According to personal finance coach José María Codesal, fixed expenses form the financial core of every individual. These are expenses that occur on a monthly, bimonthly, or quarterly basis and generally maintain a stable amount.
“It’s crucial to plan these expenses well; if we don’t have the resources to cover them, it destabilizes our personal finances and can significantly impact our lifestyle,” explains Codesal.
Experts in financial health from BBVA outline some examples of monthly fixed expenses, including mortgage credit payments, insurance, school tuition fees, as well as internet and telephony bills. Additionally, expenses like semi-annual car inspections, bimonthly water bills, and annual property taxes fall into this category.
“Some of these expenses can vary in amount; for instance, water or electricity consumption isn’t always the same. However, neglecting to pay them or reducing their cost too much can directly affect your quality of life,” advises Codesal.
Other expenses, such as streaming services, gym memberships, or children’s extracurricular activities, are also paid periodically. Although their amount usually remains stable, they aren’t essential needs and can thus be trimmed. Codesal refers to these as “semi-fixed” expenses.
Variable Expenses: Adaptable to Your Financial Needs
On the other hand, variable expenses are those that don’t occur with fixed frequency or maintain a constant amount. Their size can vary depending on your financial needs at a particular moment.
“Cutting or trimming some variable expenses usually isn’t a problem,” comments the personal finance coach. “For example, avoiding buying ice cream or dining out doesn’t significantly impact basic needs.”
BBVA financial health experts highlight that within variable expenses, there are those that aren’t indispensable, like luxuries, travels, or entertainment. However, there are also necessary expenses like doctor visits, medication purchases, or grocery shopping. The difference lies in choosing the quality of products or services acquired.
The Importance of Correct Identification
Being able to clearly distinguish between fixed and variable expenses aids in having more effective control over your finances. It also helps determine what percentage of income is allocated to covering essentials and where adjustments can be made to improve your lifestyle.
Although variable expenses are generally easier to cut, experts recommend analyzing them based on their importance and trying to minimize the impact on your lifestyle.
“Each person will have a distinct distribution of their fixed and variable expenses depending on their income. The key is to identify which form part of your essential financial core and plan accordingly to cover those needs,” concludes Codesal.
Key Questions and Answers
- What are fixed expenses? Fixed expenses are those that occur regularly, such as mortgage payments, insurance, and utility bills. They maintain a stable amount and are crucial to plan well.
- What are variable expenses? Variable expenses don’t have a fixed frequency or amount. They can include discretionary spending like entertainment, travel, and dining out.
- Why is it important to differentiate between fixed and variable expenses? Understanding this distinction helps manage your finances more effectively, allowing you to allocate resources to essential needs and identify areas for lifestyle improvements.
- Which expenses can be considered semi-fixed? Semi-fixed expenses are those that occur periodically but aren’t essential, such as streaming services or gym memberships.
- How should I approach cutting variable expenses? While it’s possible to reduce or eliminate some variable expenses, prioritize those that have the least impact on your lifestyle and essential needs.
