In their most basic sense, fixed expenses do not change over time and flexible expenses do. In most individuals budgets, monthly mortgage or rent payments are fixed, while electric bills and food bills are somewhat flexible. While each bill may change over time, a fixed expense stays the same for at least a year. Flexible expenses may change each month or only occur during certain times of the year.
Personal Fixed Expenses
When reviewing an individual's budget, several fixed expenses occur monthly. These expenses include rent, utilities and loan payments. Over the course of an individual's lifetime, these numbers may vary slightly depending upon inflation, moves, or whether debt is paid off or reduced. For the most part, an individual can budget these numbers to be exactly the same month after month with analysis done at the end of the year to determine whether any small variances have occurred.
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Business Fixed Expenses
Businesses' fixed expenses are similar to those of individuals. However, a business has the added expense of salaries. Unless the company pays its employees through commission or profit sharing, this expense should stay relatively fixed over the life of the company, barring any rapid growth in the work force. Noting these fixed expenses helps companies properly plan for next year's budget, as well as project needed income from sales.
Personal Flexible Expenses
Flexible expenses can vary from individual to individual. Some who budget accurately spend a fixed amount on most items, such as food, entertainment and automobile expenses. However, these line items can vary greatly depending upon inflation, vacations and emergencies. Medical expenses are typically an example of a fixed and flexible expense. Health insurance premiums typically are the same month after month. However, if the individual gets sick, his co-pays, deductibles and other expenses can rack up quickly, making medical expenses variable.
Business Flexible Expenses
A business's flexible expenses can vary widely from month to month. In most cases, there is fluctuation in sales during different parts of the year. This can make raw materials, utility bills and overtime costs vary greatly as well. In forecasting, it behooves the business to take a look at the yearly total of all expenses in those categories for the year and calculate an average for a monthly estimate of expenditures.