Know Your Fixed Expenses and Spending

Just like understanding your assets and liabilities, knowing your fixed expenses and spending are imperative for money management.

Whether business owner or average person everyone should know their fixed expenses and spending. Some struggle to balance their checkbook, pay the bills or create a budget and yet have no clue what a 'fixed' expense is, nor where their money goes!

A 'fixed' expense is an expense you will always have. Utilities, insurance, and groceries (or inventory for the business owner) are prime examples of fixed expenses.

Other expenses like house payments are long-term and should be included in this category until the time the mortgage is paid off (if you're buying). If you are renting or leasing the home or building that houses your business - this monthly amount should be included in your list of fixed expenses.

Although technically a "short term expense" car payments are sometimes considered a fixed expense depending on the length of the note or terms of lease agreement.

Now that we've determined what fixed expenses are, how do we pin down our spending?

Monitor it!

Every day for the next thirty days write down every penny you spend - use the how, why or what for, and where method. Did you spend cash or use credit (how)? Where did you spend the money and why or what for - Lunch, Clothing, Auto maintenance or fuel, gifts or charitable donation, impulse buy (where why/what for)?

Once you've done this then examine your spending habits and categorize them.

Should some of those expenditures be included in 'fixed'? Which are regular, monthly expenses and which are not?

If you are trying to create a budget ask yourself if any of those expenses can be reduced or eliminated altogether?

Business owners must have a handle on their fixed expenses and spending as these figures always affect the bottom line on the profit and loss and income statements. Individuals should know these two aspects of their finances as it affects their net worth.

Knowledge is important for proper money management and everyone should employ wisdom when it comes to managing their assets, liabilities, as well as fixed expenses and spending.