A fixed cost is an expense that does not change with an increase or decrease in the number of goods or services produced or sold. These are expenses that have to be paid by a company, independent of any business activity. Think rent, insurance, salaries.
Variable costs, on the other hand, may change significantly from one month to another based on the level of production or activity.
Household budgets hold the same reality. They are comprised of two types of expenses: fixed and variable. Our mortgage payment, for example, does not change from one month to another (fixed), but the exact amount of money spent on clothing or ice cream varies wildly from one month to another (variable).
In fact, the personal budgeting tool I recommend most is built on the foundation of comparing fixed expenses to income in order to discover how much is left for variable costs.
Theoretically, fixed costs are not easy to change—that is why they are called “fixed.” But not easy and not possible are not the same.
A business (and a household) can always make changes to their fixed costs. And when they lower them, they are left with more margin in the budget and more money in the bank. So let’s go over some budgeting tips to lower your fixed costs.
10 budgeting tips to lower your life’s fixed costs:
1. Buy/Rent a smaller home. In most situations, housing costs (rent, mortgage, taxes) take up the largest percentage of a person’s income. Living in a smaller home offers opportunity to cut these fixed costs. In our society, moving into a smaller home is equated with taking a step back in life, but that is a shame. There are many benefits to a family living in a smaller home. And your largest expense offers the greatest opportunity.
2. Avoid car payments. Among the most important financial advice I’ve ever received was the recommendation to never carry a car payment. “Buy the most reliable car you can purchase with cash, and then begin saving for your next vehicle. Sell your old one, add the cash you’ve saved, and upgrade.” I have followed it my entire life. And it is advice that can dramatically reduce your life’s fixed cost.
3. Double-check recurring expenses. Take a hard look at your next credit card/bank statement searching for recurring monthly expenses (memberships, subscriptions). Are you still using them all? Did you forget that some were even there? Cancel any of those you no longer need or use. Your monthly fixed cost will shrink immediately.
4. Research insurance costs. Insurance is often like elevator music—it’s running in the background but we rarely pay any attention to it. We research insurance before we buy it (property, auto, life, health). But once the decision has been made, we rarely consider other options. If it’s been five or more years since you selected your insurance company, it’s worth the time investment to double-check your premiums and compare other options.
5. Take your lunch to work. Food is a necessity, but how much we spend on food can vary greatly. Reduce the fixed cost of your food bill by choosing to pack a sandwich or salad for lunch rather than dining out.
6. Pay off your credit card debt. Interest payments are like flushing dollars down the drain—we don’t receive anything for them. I understand fully that some borrowed money pays off in the long run (mortgage, business, some student loans), but it is still important to think thoroughly about the implications of taking on a loan. Also, if you are requiring loaned money for consumeristic purchases (credit card debt), this is an interest payment that should be eliminated as quickly as possible.
7. Stop upgrading your phone. The monthly fees paid to cell phone providers have increased dramatically over time. Check other rates and options in your area. But one way to lower your fixed costs in the long run is to stop upgrading your phone just because you are eligible. Use your existing phone until it dies rather than needing the new model just because your company of choice announced a new one.
8. Cut utility bills at home. According to some studies, the average consumer spends 7% of their annual income on energy. Cutting utility bills may not seem significant, but reducing each, over the course of time, does result in substantial savings. Get a programmable thermostat, lower the temperature on your water heater, unplug unused electronics, cut cable, or better seal your home for cold or heat.
9. Research childcare options in your area. If your children are not in school (or need supervision before/after), look into new childcare options that have sprung up in your neighborhood. Just last week, my wife was chatting preschools with a friend. Our friend was shocked to hear the registration fee for a new, high quality preschool that had just opened in our area—it was much less expensive than the one she had intended to enroll her daughter in. After a few phone calls and independent research, she lowered her fixed costs significantly by enrolling in the new one.
10. Ditch the storage unit. 10% of Americans rent offsite storage. In almost every case, it is simply not necessary. I understand they can be helpful in certain situations: during moves or in incredibly high rent areas. But if your storage unit is simply storing stuff because you own too much stuff, get rid of it. Stop paying money to keep stuff you don’t need. Free your life of the financial and mental burden today.
Lowering our life’s fixed costs offers great opportunities. We can get ahead financially, we can pay off debt, or we can live more generous lives. Either way, it’s always worth the effort to practice some of the above budgeting tips.
just step out today and quickly spent over 50 on stuffs (3) at that cashier. People should gift cards for gas and grocery instead. My kids have Birthday party have goody bags and eat pizzas. Couldn’t these be used for some other spending?
Emma Healey says
Have to agree on the smaller home – although I know in some areas it can actually be more expensive to downsize. That said, the ongoing costs are much lower. We adore our small home and it keeps the budget in check, as well as ensuring we never buy something we don’t need because we simply cannot fit it in our house.
Haha! Anyone else discover they were already minimalists and didn’t know it? We pretty much already do or have done everything on this list. (*Childcare was always with trusted friends who also charged less back in the day!). From having to sharply cut corners while we both worked and went to college, I learned early on how to live on a shoestring! Many years later, we did foreign missionary work on a tight budget. I used to be a bit jealous of young couples who ate out constantly, had nice things, and could afford tickets to whatever fancied them but, looking back, I was the real winner, learning how to live within my means! One yr when our CPA did our taxes, we discovered that the govt. had our income bracket labeled as being poor and we received a refund check even though our taxes zeroed out! We had a good laugh because we used no govt. handouts, food stamps, etc. (Although, I guess we qualified!). But, we didn’t know we were “poor” because we continued to live within our means and make do!!!
Jodi Roste says
Being a single female & being ripped off by thousands at repair shops by having a used car, no thanks! I’ll buy new, take care of it & make a car payment! If you have good credit you can get 0% interest!
Buy cash upfront and u will see u r paying interest rate
This is a good point, but I can personally attest that car dealerships often raise the price of the vehicle if you’re getting 0% interest so they’re still making money from the sale. I do agree that buying new can save a lot of headaches down the road. You never know how someone cared for a used car before it was yours.
Whilst I agree with most on the list…choosing a childcare based on fees alone is not something I agree with.
If ‘savings’ is at the top of my list when choosing a childcare provider…I wouldn’t consider myself a good parent! There are hundreds of other ways to save than sacrificing my children’s educational/care needs!
That’s exactly what I thought when reading this. Cost is way down on the list of considerations when choosing child care.
I agree with you on the cell phone. Buy the phone outright. Use a prepay plan. Can you believe that I only pay $20.00 per month?
Also. Not for everyone, I bought a duplex and lived in it. Tenant basically paid the mortgage.
Agree with you about the car payment. Haven’t had one in 40 years.
Cyrena White says
Last year I compared income from some stock I inherited that I had sat on for 20 years to what I was paying out in interest on loans for the same amount (minus taxes from sale of stock). It was less than 10 percent income to interest payout. I took the jump and sold the stock. All credit cards and car payment paid off and I have 800.00 a month less debt payment. Which is mostly going to paying the mortgage off early. Now with covid and hours reduced, I realized I never would have made it through this year without losing my house if I hadn’t sold the stock when I did.
Judith Johnson says
I do update my cell phone more frequently than I should. But I also have managed on several occasions to pass the old one along to a needy person. My bill is relatively low as I will not pay for data
Nana Lu says
As someone who rents storage units/spaces at my job I am always amazed at what people spend over years. When my business partner said let’s build storage units 35 years ago, i said “are you crazy, no one is going to pay us to store their stuff!!” He was a visionary, i was very, very wrong. Some never come back, just pay every month. One person moved across the country, that was 15+ years ago, every month he pays. Cars parked outside in the weather, just rusting, also 15+ years. I admit, I have not even scratched the surface of what I want to move out of my life, I’m it it with them, just living w clutter instead of a monthly storage bill.
As a 95% stay home mom, my job was saving money. Never borrow, except for a 15 year mortgage, buy used, pay cash, purchase only what you actually need, enjoy nature, it is free, Home school, (our biggest splurge, christian school when we could afford it). Do our own home repairs. My husband roofed our house and when a hurricane ripped up roofs all over town, we had not one loose shingle. Live simple. The biggest joys are doing simple things with those you love,
Excellent article as always, Josh. With regard to the cell phone, I have a second-hand, refurbished older model phone I bought from a provider. I do the ‘pay as you go’ plan so I spend about $100 a year on minutes. I know this is simply not feasible for many who have kids and use their cells as their main means of communication. But $100 a year is all I spend on a cell. I just really think before I send a text and ask family and friends only to text me if it is pertinent and they really need me. Imagine if you could have in your hands in December, the money you spent on your cell and cell bills that year?
This is all very practical advice – and very good advice at that. I think the most important change of all is one in mindset. Namely, we have to overcome our programming (much like Joshua’s article about advertising in Forbes was talking about).
In all of these changes above, we have to let go of “the committee” in our heads; the eternal chorus of “what will so-and-so think?” if I stop upgrading my phone, or take my lunch to work, or live in a smaller house. Part of this mindset shift is realizing that we can live our own lives, unencumbered by societal pressures, by what some imaginary committee believes about what’s best for us.
Taking charge of your own life and your own decisions is empowering and brave.
Less is more says
I went carless for 3 years saved a fortune.
Janet Fazio says
Totally agree that storage units are generally speaking a waste of money, unless you’re so cramped for space that you need to move things in and out of it seasonally. Kind of like that old dress in the closet. If you haven’t worn it in over a year, you don’t really need to keep it.
Great article! I am accountant so I enjoy the sharing of financial wisdom. My husband and I are able to live on the island of Kauai on my Salary while he grow his web/seo marketing company. It is because we don’t have any debt or car payments. We share a car and he takes the bus from time to time. We also cook at home and usually only eat out when meeting friends or if we are out and about. Personally, the everydollar budgeting app has made the most sense to me. We discuss our budget each month and each time we make bigger purchases. We respect each other as financial managers of our household. It is because of this that we have so much fun because we can spend money we confidence.
joan mckniff says
Totally agree. At 77, a lifetime of following those habits, with frequent exceptions to bring own lunch for a mix of good reasons, especially for a single person, made a huge contribution to a secure retirement in a continuing care community. Might I add a suggestion? As for many people standard tax deduction is more than mortgage interest deduction, be sure you get a mortgage that allows advance payment. Mine let me add any or no amount with any given payment. I paid off a 15 year mortgage in 7 years earning a sense of security and saving on interest costs.
Andrea D says
Thanks for this Joshua- (couldn’t resist reading 10 tips!) as a professional organizer, I encourage people to NOT use storage units because of the expense and ALSO because like filing – most people do not look at it once it is stuffed away.
When I realized that I was just being sentimentally attached to the stuff I had in storage and that calling my storage unit a spare room didn’t mean that stuff got eighty dollars more valuable every month that made the stuff easier to part with. It really is easy to become a slave to ones memories.
Great list, however downsizing your home isn’t always a way to reduce costs. We live in an area where housing costs are going up. While we could find something smaller in our area, it would actually cost us more in mortgage or rent than where we live now.
@Ann totally agree. I’ve been trying to downsize to a smaller home for 9+ months. But our mortgage and interest rate would be higher than we currently pay. It seems cruel that people are almost forced into staying in too-big spaces because downsizing is more expensive. There has to be a better way.
My wife and I are buying a slightly smaller condo in the city after renting a large apartment in the suburbs. The smaller space is forcing us to simplify our lives, which I’m looking forward to. Sure, our housing cost will increase, but our overall consumption will go down. Doing more with less will allow us to save in other ways.
Can you instead rent out a room in your bigger house?
We live in a neighborhood where everyone seems to drive brand new BMWs, Mercedes or Teslas, but we have a 2002 Honda Odyssey van (our only car … we both work at home) that we bought used back in 2008. We thought about buying a new car at one point this past year, but after doing the math, we both agreed, that it simply was not worth it. Our daughter is in Junior High School and I think she is at times embarrassed to have friends ride in our car but I remind her that we are close to paying off our mortgage and I would doubt many of her friends parents could say that. Hopefully, our pragmatic approach will rub off on her. We don’t skimp on everything though. Just make sure that if we spend money, it is worth it to us ;) Another thing besides car payments that are not worth it to us … TV services like cable or dish. Cut the cord 10 years ago. Never looked back.
Diane i couldn’t agree with your approach any more. I have no debts and looking at retiring next year at 53. My sons have called me tight over the years but the oldest moved out bought his own home and now is using every spare cent to clear that debt. He has picked this up, although he wouldn’t admit it, from the examples we showed him during his growing up. Your daughter will be miles ahead of the other kids in the future. I wish all kids could have better guidance with money
i have always been minimalistic.i hate stuff around me.i could happily live in a near empty room! i only buy items needed, have no debts and am happy. its true what they say”less is definitely more””.
Janet Boucher says
Seriously toying with dumping cable. I’ve let go of smaller expenses like land line and newspaper subscription. Cable likely to be next.
Yep! We installed an indoor antenna to get the local stations for free, while everyone around us is paying $150+ per month for entertainment. It’s a huge waste of money and keeps you sitting on your couch. Ouch.
Torrie @ To Love and To Learn says
I have been working on this all month, as a matter of fact! I hadn’t looked at our car insurance for years, so I got online and did some shopping around. Then, discovering that an online insurance quote was $20 less per month than what I was currently paying, I called my car insurance agent and had a chat. Some of the reason for the lower payment was because one of the things I’d checked was different than my current plan, but my agent was able to shave off $10 immediately from my insurance bill and explained that another (lowered) amount would be coming shortly, since each year I completed with them kept driving it down.
Now I’m looking to lower our cell phone bill because we’re paying for data but don’t even own smartphones (since that was the only plan Verizon offered us at the time). I’m thinking we can easily shave off some money there too, especially since we’re paying $60 a month for two “dumb” phones!
Be aware though that different insurance companies and policies cover different things, and sometimes cheapest isn’t best. We had a kitchen flood last January, just six months after a major renovation. Heartbreak and heartache aside, had the insurance company not covered the damage (over $30k!), I would have been devastated. Also, my insurance company was very easy to work with, which made that very stressful situation easier to deal with (that is also definitely worth noting!).
On my local nextdoor.com, I read about another neighbor who also had a slab leak, and her claim was denied by her insurance (obviously I don’t know the specifics), but it just made me realize that having a good insurance company/policy/agent is REALLY important. Funny too, I had been insurance price shopping, but after reading that nextdoor.com post, I decided to stay put even though my policy did cost a few hundred more per year than what I was being quoted.
For insurance, you really need to consider the value of your assets, and the rating of the insurance company – from a coverage and customer service standpoint. As they say, you (often) get what you pay for.
Sylvain Ubersfeld says
Hello…I have read your lines and liked it ….I know a few “shnorrers” who should do what you advocate..It made me smile…I am doing the same at my level in France, out of sheer necessity….and I am still alive…! Good luck with your endeavours…
amy martin says
Any ideas on getting put of a car loan you can’t afford? We bought a car prior to husband loosing his job and I cant afford it. Ive asked for payment dates to be changed and thats not helping at all.. I just can’t afford on our current combined income. What can a person do.?
Try trading in for a less expensive car
joan mckniff says
@Sarah, they still have payments on the vehicles. Sure, trading it in will possibly help with longer-term expenses, but they still owe for the current loan.
I’ve never done it, but it is possible to find someone to take over your payments and the car. Search on the internet for ways to do this.