Do you know your monthly expenses? These can be divided into a variable portion and a fixed portion.
Variable costs can be quickly changed by behavior modification, while fixed costs are incurred regardless, are consistent from payment to payment, and are usually only influenced by major changes.
In this article, I will show you how your monthly costs consist of fixed and variable costs.
What are Fixed Costs?
Fixed costs are those expenses that are usually incurred regardless of personal activity or behavior. This means that fixed costs are those costs that would theoretically still be incurred if you went on vacation for two months. Here are some examples of personal fixed costs:
Housing:
- Rent
- Repayment of loans and mortgages
- Basic heating charges (not the consumption-dependent part)
- Basic electricity charges (not the consumption-dependent part)
- Basic water charges (not the consumption-dependent part)
- Garbage disposal
- Chimney sweep
- Sewer fee
- Property tax
- Home insurance
Mobility and Car:
Lease rates
- Car insurance
- Car tax
- Toll (vignette)
- Ticket for public transport (e.g. annual ticket)
Mandatory fees:
- – Taxes
- – Broadcasting fee
Personal:
- Insurances (e.g. personal liability, health insurance)
- Internet
- Mobile phone contract
- Subscriptions (e.g. streaming, newspaper subscription)
- Pay-TV
- Club and membership fees (e.g. gym)
- Alimony payments
- Childcare
- Bank fees (e.g. card fees, account management)
What are Variable Costs?
Variable costs change depending on the activity or behavior. They are not regular and can vary greatly from month to month. Here are examples of variable costs:
Personal:
- Food and beverages
- Restaurant and bar visits
- Clothing
- Travels and vacations
- Health (e.g., doctor’s costs and medications not covered by insurance)
- Hygiene products
- Gifts (e.g., Christmas, birthdays, weddings, …)
- Hobbies
Mobility:
- Fuel (e.g., gasoline, diesel, electricity for the car)
- Individual tickets for public transport
- Taxis and ride services
- Car repair and service
Living and Household Management:
- Utility bills (the consumption-dependent portion)
- Electricity
- Heating
- Water
- DIY and repairs (e.g., heating, dishwasher, roof, …)
- Household items (e.g., furniture, washing machine)
- Consumables (e.g., cleaning supplies)
Pets:
- Food
- Vet
- Toys
Understanding the differences between fixed and variable expenses can help in creating an effective budget and identifying opportunities for savings.
Why Distinguish Between Fixed and Variable Costs?
The distinction between private fixed costs and variable costs is especially important when you are planning your expenses with a budget. The fixed costs must be taken into account in the budget as they are, as the name suggests, fixed and cannot be changed in the short term.
For variable costs, depending on the expenditure category, you can define in advance how much you want to spend on it. The planned expenses must then be checked continuously with regular income-expense tracking to ensure the budget is adhered to.
What are the Total Costs?
If you know your fixed costs and your variable costs, determining the total costs is quite simple:
The total costs consist of the fixed costs added to the variable costs.
Both costs, that means fixed costs and variable costs, are changeable and contribute monthly to your total costs. Even though variable costs are often quicker to change, I recommend keeping a close eye on fixed costs, as they also contribute significantly to total costs over time.
How to Find Savings Potential
In the short term, you can quickly find ways to save on variable costs. This is primarily because you can immediately change variable costs through your behavior. However, you should still keep an eye on your fixed costs, as longer-term changes can have a significant impact on your future wealth.
The three largest expenditure categories for most people are taxes, followed by housing and mobility (car). Here you can get the most savings potential through smart decisions. You can’t do much about taxes except for changing your residence, but your apartment and your car often offer many opportunities to optimize costs. Here are some examples of how you can immediately reduce your variable costs.
Finding Fixed Expenses with the Help of the Household Book
At the beginning of the article, the individual categories of costs were described. But how can you determine your own total costs?
A household book is a practical way to get an overall view of financial behavior. A household book should be kept for at least three months. In it, you record all expenses and income and assign them to a category (e.g., groceries, rent, salary, …). These categories can be divided into fixed costs and variable costs. The longer you keep a household book as an income-expenses tracker, the more precisely you know about your fixed expenses.
Leave a Reply