Tips for Financial Success - Part II

In the first article, Where Do I Stand Financially?, you learned how to calculate your net worth. You made a list of all your assets and your liabilities. In this article, you will take a closer look at those expenses (liabilities). It is by understanding where your money is going, and how much of it is going to each item, that you can make changes and improve your financial situation.

The first thing to know is that you have fixed and variable costs associated with living.

Fixed expenses are those that don't vary from payment to payment. They may happen every month, every six months, or every year. An example is a car payment. Just because you don't use the car for a month, the payment does not disappear or change; therefore, it is considered a fixed cost.

To find out what your fixed expenses are, look back to your assets and liabilities list. You will notice that, possibly, your fixed expenses make up a large percentage of your total liabilities.

The housing cost, mortgage or rent, is the number one fixed expense. This amount cannot be easily manipulated. Selling or refinancing the house is harder now than it was a few years ago. If you are renting, you may find a less expensive accommodation; however, if you leave earlier, chances are, you will incur in penalties.

A car payment might rank high on the list of your fixed expenses. This is also a cost not easily changed. It can be done, but a lot depends on your vehicle, its condition, its current value and the amount you have yet to pay.

Life, health, auto, and home insurances are another big part of your costs. Life insurance provides the surviving family with the financial stability in the event of a loss of life. Health insurance covers the individual or family when medical expenses occur. You may be purchasing health insurance through your employer, which is the best way to obtain coverage, or you may be providing it on your own. Mandatory auto insurance provides the driver with coverage in the event of an accident. Home insurance, mandatory for home owners with a loan on the property, covers the insured in the event of a partial or total loss of the home and/or its content. It might be possible to lower these insurance premiums.

One last fixed expense is generated by loans such as personal loans, and student loans. They could both possibly be modified, with a little bit of work.

All other expenses fall under the variable costs.

Utilities are the first costs to come to mind under this category. Water, electricity, and natural gas (unless living in an all-electric home) are expenses necessary for basic living conditions. The monthly amount will vary, unless you have set up the accounts under budged billing, in which case the billed amount stays the same independently of the monthly usage. With some creativity, these costs can be lowered.

Other miscellaneous home expenses are for such items and services you are accustomed to accessing but are not necessary for basic living. These costs include phones, dish or cable, Internet, exterminator, home alarms, and yard maintenance. These costs can be easily changed.

The remainder of the variable expenses makes up the rest of your liabilities.
These include food, gas in the vehicle, or public transportation, clothing, grooming, entertainment, and pet care.

While some of these fixed expenses might not be easily changed, the majority of these costs can be modified to help you gain control of your finances and achieve financial success. The next article in the series, Where and How Can I Save Money?, will discuss ways to cut down on most of these expenses.