In the world of budgeting and frugal living, we pay a lot of attention to our day to day spending habits. And rightly so. This spending totals up to a big piece of the pie, your variableexpenses or discretionaryexpenses. Your day to day habits reflect the life you are living and can be instantly changed, one spending choice at a time. Do those habits and choices align with your best life and your core values? The life you want to be living?
But what about those expenses that aren’t your day to day, week to week spending decisions? Now we’re talking about your list of fixed expenses, or those recurring monthly expenses as I call them in my money management spreadsheet. They’re justthe regular old bills that are ‘fixed’ in that they are pretty much the same amount every month… and they’ve gotta be paid.
What's In This Post
A typical fixed expenses list
- Mortgage or rent
- HOA/condo fees
- Utilities: water/sewer, gas, electricity, garbage
- Child care
- Car payment
- Tuition
- Cell phone
- Cable & internet
- Any monthly paidinsurance premiums (life insurance, monthly car insurance, etc.)
- Gym membership & other monthly memberships/subscriptions
- Other debt repayments (from credit cards, student loans, personal loans)
In addition, you likely have some periodic fixed expenses which are those recurring expenses paid a few times a year or annually. I allocate one tier of my 3-layer savings account to cover those.
So when you look at this fixed expenses list, you feel like it’s pretty… er, fixed, yes?But just like groceries are essential, there is a wide range of what you can actually spend on these necessities.
For this post, I’m going to focus on the biggest items on this list- housing choices, vehicle choices, and childcare choices. To me, these three areas plus food spending are the ‘big four’ for young families. They represent far and away the largest chunk of your expenses.
Just our mortgage and childcare for one kiddo eats up 42% of our monthly income currently. In recent years, the combination of childcare for both kids, mortgage, and car payment used around 65% of our monthly income. That is worth some careful attention.
The smaller fixed expenses, like utilities and services are important too (not to mention debt!), but these big four choices (housing, vehicles, childcare, and food) have monumental potential to save money in areas that are not highest priority for you.
Childcare
Childcare expenses, as I’ve discussed previously, are both temporary and an investment in your earning potential as a working parent. Likewise, it’s additional enrichment for your child from someone different than mom and dad.
For example, when we had a nanny, she was amazing at getting out of the house and going places with our kids, something I (a home body) was terrible about. So my kids got more of that from her which they wouldn’t have otherwise. When our first was in a home daycare, I used to love how he had little baby friends. He actually would crawl away and hide from us in the baby ball pit at pick up time! He really loved his home away from home and his baby buddies there. And that made us feel good too.
So, for us, child care spending has always been a top priority. It’s not a place to skrimp. You need a place or person with whom you feel awesome about leaving your child, that is safe, professional, licensed. But you probably don’t need to stress over the preschool’s music program and foreign language options for your toddler. Make a safe, high quality, but pragmatic choice. And remember this cost is an investment and is temporary.
Housing
Houses… oh real estate, you temptress! Typical financing for a home is very expensive, with interest loaded highest in those first years. And the transactional costs of real estate are also quite high (so many fees… and somebody has to pay the agents!).
Banks and real estate agents are all too helpful to find you that ‘perfect’ home. And too much HGTV makes us think sometimes your home really should be perfect. Not long ago typical family homes were 1000 sq ft or less. Now they are 1600 sq ft and up. There’s lots of interesting potential reasons for this and it appears to be a predominantly U.S. phenomenon.
When I was reading about options for building a small efficient house awhile back ago, I came across these zoning restrictions that actually required building my potential future house with certain minimum room sizes and home square footage. Seriously? That surprised me, but is apparently pretty standard stuff. It’s the reason ‘tiny homes’ are all technically trailers. It’s not code to build a house that small on the ground and call it a house.
Basically the norm and the culture is to go big. And of course bigger is more expensive- not only to purchase, but to heat, cool, furnish, decorate, repair, clean, etc. Need a new roof? Bigger roof means bigger cost. You get the idea. Those are the sneaky extra costs… which may be good for the economy but impact your bank account.
Deliberately choosing a smaller space or just living in a less expensive neighborhood is one single, but majorly impactful choice you could make that will have financial impact month in and month out, year in and year out. Not only will your fixed expense of rent or mortgage be dramatically less, but if you are the homeowner, your maintenance and improvement costs will likely be less also.
Vehicles
Much like housing, thinking carefully about the impact of your choices around vehicles can have a major impact on your finances through just one decision. You might drive your choice of vehicle to Starbucks to grab your take out latte daily, but that coffee cost will pale in comparison to the choice of what you’re driving. Like home loans that sneakily take mostly interest on the front end of the loan, vehicles serve up their financial disservice by depreciating faster than cloth diapers. It’s essentially a consumable item, but one that is traditionally financed over five (or even seven) years. Also keep in mind that insurance and registration fees are going to be more for a more expensive vehicle.
So how much do you truly want to commit there, as compared to your daily lifestyle spending? It’s worth a good think.
How fixed are fixed expenses?
It’s really easy to ignore your fixed costs and keep paying things on autopilot. But take a few minutes to write out your fixed expenses list and then put them in order of priority, according to your values. Which ones rise to the top? It’s easy at first to say all of these things are important! They’re like the most essential things after all. But we’re not talking about dropping one off the list entirely (though you could for some of those smaller ones!).
For me, my home environment is important to me, but not the size. The car I drive is of little importance otherthan it being long lived and reasonably reliable. But my husband’s vehicle is definitely important to him. So I can write out those values to help keep us grounded during decision time around these things, respecting each of our spending values. Because these decisions should not be a question of what you can afford, but rather a question of what you choose to afford.
If you can identify one of these major expense areas to make a change, let’s look at the impact. Choosing a different home option that is $1,500 per month instead of $2,000, or to drive your paid off car instead of taking on a $500 per month car or truck loan are choices that save you $6,000 per year just from one spending choice. To save that much through changes to your discretionary spending or variable expenses, you would have to make fifty $10 choices per month or five $100 choices each month about things to sacrifice.
In conclusion…
Nothing is truly a fixed cost. Everything is changeable if you decide your priorities and make an intentional change to better align your spending with those priorities. And spending means more than your daily credit card swipes. Just one decision on one of the big ticket categories like home or vehicles can free you up for other values based spending for you and your family. In the example above, that $6,000 per year could be redeployed towards achieving your long term vision for your family.
And ultimately, we want our money to work for us in exactly this way. Don’t be limited by your money, but instead deploy it thoughtfully towards your most important values and goals.
