Knowing that expenses can put you in a bad financial shape and lead to bad debt is worrisome. Also, knowing how too much expenses is affecting you and why you accumulate them was discussed in my last post. Knowing that these expenses can be caused by little things we take for granted and rarely bother to investigate or take note of is also worrisome.
you also know these habits either make you or destroy you leading you down the drain if your emotions are not controlled and things curbed to help have a great financial future.
You need to start looking at how these expenses prevents you from achieving your financial goals like saving, investing and starting your side hustle to become financially free. How they eat deep into your finance bit by bit and how to curb, manage, settle off or either delay gratification to achieve certain goals.
Expenses comes in many form as shared in my last post that they are in business, project, and personal finance. Most times, it boils down to habit that we develop or learn which can be unlearn. Peer groups that makes us incur these expenses and generational patterns from family which you have followed, and your next generation might likely continue with it too if care is not taken.
Expenses are in many kinds, but the important ones are the ones that deal with managing your finance and how to weed it out and growing wealth is the most important one.
It’s never too late to start now to fix everything that ought to be salvaged early and put your finance in shape. You never know there are types of expenses and they fall into different kinds too.
These are the two types of expenses
(1) FIXED EXPENSES
(2) VARIABLE EXPENSES
These are expenses that are fixed and do not change and are paid on basis. They rarely fluctuate and cost the same amount. These are unavoidable expenses. Its always easier to budget for this type of expense because of the amount is fixed and can’t be waived but it can change slightly due to circumstances. It always takes the highest portion in your finance.
Fixed expenses can be rent, mortgage car payment subscriptions, loans and many more.
The interesting part is that your fixed expense is still flexible. For example, if you change location to a new environment there is probability that your rent might be high or low which makes it change due to circumstances.
For example, John works in a soap manufacturing company as a supervisor. He lives in a three bedroom flat with his wife and two kids. He earns #100,000 monthly. The company got hit by serious loss and drop in sales. They had no option but to cut down staff and reduce salaries. John escaped been laid off but had his salary cut by 40%. He had no option but first change environment to look for two-bedroom flat and live in an environment with low rent to budget and manage his finance.
That is just one in many examples of fixed expenses that can be flexible due to situation that occurred. When the rent either go high or low, may you lose your job, trying to cut down your expense or got to job and you need to move close to house or trying to live up to the new standard of life you just acquired.
Also, looking into ways to fix your subscription can either make it higher or lower based on the new lifestyle you just acquired too.
Knowing the way fixed expenses alter your finance is also important and looking for the best way to sort it out so that you can budget well for your finance and worry less financially is also of great importance too.
Variable expenses are daily expenses you engage in. These expenses are more on non-essentials, they are incurred on your own freewill and required for living comfortably. You make the decision to acquire these expenses based on voluntary expenditures. The amount spent on these expenses differs monthly. These necessities surfaces in form of wants like frivolous spending.
It’s one of the hardest expenses because its where you can cut your excesses and move the excesses to where the money can work well for you. It needs total commitment and focus to manage this kind of expense. It’s about making decision if to buy or spend on certain things or not. If to involve in events that requires frivolous spending or not.
Example of variable expenses are eating in exclusive restaurant, buying expensive clothes, spending frivolously with friends in expensive places, car repairs, spending on groceries and many more.
For example, Rowland was a banker, earns over #150,000 and wants to live up to the standard of his peers. He buys his suites and clothing from the mall and hangs out with friends on Friday night and spends more than his friends on booze to show he’s of the same class. When he got married, everything changed, and he realized the damage he’s has done to himself. He decided to cut all these losses drastically.
With this, you understand variable expense and its realistic impact on you in all areas of your life and where you stand currently and the next action to take.
Knowing these two types of expenses is crucial to your finance and knowing why you acquire too much of them is also important. Also knowing the impact of these expenses on your finance and knowing that you can act on them to fix your finance is of great importance.Knowing that you can cut down these expenses and that they can be adjusted due to situation is undeniable.
These expenses eat bit by bit into your finance without being aware of it till you do a review on paper that is when you see mathematically how deep it affects your finance.
You need to start looking into your fixed and variable expenses and plan on how to start cutting them down so that you can save more, invest more or invest in your side hustle or plan to expand your side hustle, pay up your debt, build up your emergency fund and many more positive things to do with the free cash.