Budgeting

What Is a Fixed Expense?

Updated on October 12, 2022

A child and parent drop coins into jars labeled with household expenses. — Photo:
Peter Cade / Getty Images

Definition

A fixed expense is a bill that must be paid on a regular basis and the cost of which doesn’t vary too much. Since fixed expenses don’t change, it’s easier to budget for these items. Your mortgage, loan payments, and property taxes are examples of fixed expenses.

Key Takeaways

A fixed expense is a bill that doesn’t change from month to month.
Your monthly mortgage payment, insurance premiums, and childcare costs are examples of fixed expenses.
Fixed expenses can occur weekly, monthly, quarterly, or annually.
Variable expenses change from month to month, depending on usage.
Utility bills, food costs, and medical bills are examples of variable costs.

How Does a Fixed Expense Work?

The best way to manage your money is by coming up with a monthly budget. Fixed expenses are any budget items where the amount doesn’t vary much. For instance, your mortgage payment and gym membership usually will stay the same.

These expenses are paid at regular intervals and the amount doesn’t change too much. You could have fixed expenses that you pay weekly, monthly, quarterly, or annually.

Note

If you’re looking for budgeting strategies, you might try the 50/30/20 budgeting rule. This budgeting plan allots 50% of your after-tax income toward needs, 30% toward wants, and 20% toward savings. This rule can help you come up with a reasonable budget you can stick with.

Example of a Fixed Expense

Here are some examples of fixed expenses:

Mortgage or rent payments
Loan payments
Childcare costs
Tuition payments
Insurance premiums

These bills don’t have to occur monthly to be considered fixed expenses. For instance, let’s say you have a life insurance payment that you make quarterly. This would be a fixed expense since the amount doesn’t change.

Note

If you’re looking for a way to plan for occasional variable costs, like buying Christmas presents, you might try setting up a sinking fund. A sinking fund is a savings account for a future planned expense. This can help you avoid dipping into your emergency fund or relying on credit cards for expenses you know will come every year.

Fixed Expenses vs. Variable Expenses

Fixed Expenses	Variable Expenses
Costs stay the same each month	Costs change each month
Examples include rent, insurance premiums, or memberships	Examples include utilities, food costs, and entertainment
Tend to account for a larger percentage of your budget	Many variable costs are still necessary expenses

When you’re creating your monthly budget, there are two primary types of expenses you’ll encounter: fixed and variable. Fixed costs are bills that stay the same, such as your rent or mortgage payments and any monthly memberships. In comparison, variable costs are budget items where the amount changes each month. For instance, your utility bills will change each month depending on usage.

Fixed costs tend to account for a larger percentage of most people’s budgets, but that doesn’t mean variable costs are any less important. Many variable costs are essential budgeting items, such as food and electricity.

Note

If you’re looking for ways to save money each month, start by finding ways to cut down on both your fixed and variable expenses. Variable costs are usually easier to adjust, while fixed costs can be more challenging. For instance, it’s easy to adjust your food spending or your entertainment spending, but you may have to move or refinance to adjust your monthly rent or mortgage payment.

Frequently Asked Questions (FAQs)

What are examples of fixed expenses?

Fixed expenses are budget items that are paid at regular intervals and the amount doesn’t change. Here are some examples of fixed expenses:

Mortgage or rent payments
Loan payments
Insurance premiums
Childcare costs
Tuition fees

Since these bills stay the same, it’s easier to budget for them each month.

What is not a fixed expense?

Anything that isn’t a fixed expense is considered a variable expense—that means the amount changes from month to month. For instance, your utility payments change depending on your usage, so these bills are considered variable expenses. Any unexpected expenses that come up throughout the month—like a surprise medical bill or sudden car repair—are not fixed expenses.

Is food a fixed expense?

For most people, their food budget changes from month to month, so food is considered a variable expense. We often think of fixed expenses as necessary and variable expenses as unnecessary, but clearly food is a necessary expense! By tracking these costs in your budget, you’ll get a better sense for how much you’re spending on food and will be able to plan more effectively.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

SoFi. “Fixed Expense vs Variable Expense.”