Managing Fixed Expenses
Once you've listed all your expenses, and you know which ones are fixed, it's time to work on managing your fixed expenses. There are several ways to do this:
Necessary vs. Unnecessary: One of the best ways you can manage your fixed expenses is to eliminate the ones you don't really need. Of course, you probably can't get rid of your mortgage payment overnight, but you can cut out some luxury expenses: Take the movie package off your cable bill, and save $12 a month. Or, change Internet providers for a better deal, and save another $10 a month. Listen to local stations and save that $15 monthly for satellite radio.
Pay Yourself First: Schedule savings into your budget plan. Look at how much money you have left after expenses, and choose an amount to set aside each month. Put that amount aside as soon as you get your paycheck. Better yet, have it automatically deposited into your savings account.
Downsize: If you have a family of five and you live in a spacious, four-bedroom house, you may want to consider moving into a smaller, three-bedroom home to save on mortgage payments, insurance, and taxes. Of course, it probably isn't feasible for a large family to move into a small apartment. Find a home that is large enough -- but no larger.
Likewise, a cattle farmer probably could not trade a large diesel pickup for a tiny sedan, but he could get a model with fewer luxury features. Downsizing is a great option for those who have more luxuries than they really need.
One by One: Study your budget to see which fixed expense you might be able to get rid of. Choose one monthly bill, such as your car payment, that you will eventually pay off. Set aside as much as you can to pay it off early. Even if you only make one extra payment a year, you can really make a difference. Remember, anytime you can cut out an expense, you now have that extra amount to save or put toward other expenses.
However, be aware that some loans, such as mortgages, carry prepayment penalties. Make sure what you're saving in interest will outweigh any fee you might have to pay.
Share the Load: It may be helpful to take in a roommate. Splitting rent and utilities can help tremendously in lowering your fixed expenses. But if you have a family, or if you're married and just starting a family, a roommate probably isn't an option. Instead, you may want to opt for other tactics, like trading services with neighbors to save on lawn mowing, house cleaning, and other expenses.
No matter how tight your budget is, you can learn to manage. Starting with your fixed expenses is a good way to save more of your paycheck. Use your budget planning sheet to outline all of the expenses you expect every month, and work to get them under control. It's not always easy, but it will definitely pay off down the road.
The resources and budget planning sheets below can give you even more help.
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More Great Links
- Brewer, Philip. "Manage your fixed expenses." www.wisebread.com/manage-your-fixed-expenses 2/17/08 (5/05/08)
- "How to Budget & Save." Federal Reserve Bank of Chicago, www.chicagofed.org/consumer_information/budgeting_and_saving.cfm#2 (5/5/08)
- "Money 101, Lesson 2: Making a Budget." http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm. (5/5/08)
- Weston, Liz Pulliam. "7 Roads to Financial Ruin." http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/7WaysToCommitFinancialSuicide.aspx 9/7/07 (5/5/08)