Costs can go up, or you may be able to negotiate a discount or find a cheaper option. That doesn’t mean fixed expenses can’t change. These expenses are often referred to as “overhead.” Examples include rent, insurance premiums, loan payments, equipment leases, or property taxes. What Are Fixed Expenses?įixed expenses are just as they sound: fixed amounts that must be paid regardless of how much you produce or sell. ![]() A service-based business may have relatively predictable utility costs for heating or cooling the office, for example, while utility costs may be much more variable for a manufacturing business. Some costs may be fixed or variable, depending on the business. What Are Some Examples of Variable Expenses? In addition, you probably have semi-variable or semi-fixed costs, which are a combination of both. This can be the case whether you run a service business or a business with physical products. These costs may increase or decrease depending on production. Variable expenses, on the other hand, are related to sales volume. You’ll incur those types of expenses regardless of whether sales increase or decrease. Fixed Expensesįixed expenses are costs that are not directly tied to sales. While managing all your business expenses well is important, here we’ll focus primarily on variable expenses, which may offer opportunities to save money quickly. Your business expenses likely include fixed and variable expenses, as well as expenses that are a mix of both types. Managing your business expenses is also key to profitability. This example is more about fixing a variable expense, or making it definite.Running a successful business isn’t just about bringing in more sales. (By the way, I’m not saying $200 is the perfect amount to spend on monthly “dining out” expenses your income and other expenses will determine that. Your spending in that category will not vary it will be $200. This means you would allot $200 in your budget for dining out that is your set limit. For instance, in the previous dining out example, you may want to fix your “dining out” expense at, say $200 a month in your budget. That is, set a definite amount for each expense in your budget, even if it’s variable. The solution: Try to “fix” all your expenses. Variable expenses make it easy to erroneously overspend. Variable expenses are not good for financial planning because you don’t know how much you are spending on them and the extra costs can hurt your budget if the expense grows. One month you may spend $150 dining out and another month you may spend $350. ![]() For example, dining out is a classic variable expense. Variable expenses are not definite and can change. Fixed expenses are great for financial planning because we know how much they cost and we can plan for them and how they affect our budget. Rent will be $800 (or whatever the amount is) every month. For example, rent (when you sign a lease) can be a fixed expense (during the lease anyway). Let’s take this opportunity to discuss some ways to look at expenses.įixed expenses are a definite amount every month and do not change. Let’s transition to the other half of your budget: monthly expenses, or, in other words, what you spend your money on. “I couldn’t believe how much I was spending on dining out!”
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