fixed expenses
Recurring costs that remain the same each month regardless of usage — rent, mortgage, insurance, and loan payments.
Example
“Fixed expenses of $2,800 per month meant she needed at least that much income to survive.”
Memory Tip
FIXED — predictable and unavoidable. The floor of your monthly budget.
Why It Matters
Fixed expenses are critical to understand because they form the foundation of your monthly budget. Knowing exactly how much money must go toward these obligations helps you determine how much discretionary income you have available and ensures you can meet your essential financial commitments every month.
Common Misconception
Many people believe that fixed expenses can be reduced or eliminated as easily as variable expenses like dining out or entertainment. In reality, fixed expenses are contractual or legally binding obligations that cannot be easily changed without significant life decisions like moving homes or switching insurance providers.
In Practice
Consider someone earning 4000 dollars per month with a 1200 dollar mortgage, 150 dollar car insurance, 100 dollar internet bill, and 300 dollar loan payment totaling 1750 dollars in fixed expenses. This person knows that no matter what happens with their job or spending habits, they must allocate 1750 dollars monthly, leaving only 2250 dollars for variable expenses and savings.
Etymology
From Latin 'fixus' meaning fastened plus Latin 'expensa' meaning money spent.
Common Misspellings
Get a free financial plan from a real advisor
Related Terms
More in financial planning
Other financial planning terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.