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. The bank or the landlord expect to receive a certain amount to pay down the loan or the fee to live in the apartment. This figure is based on the agreement the person signed before moving in. Until a new arrangement is agreed to, it doesn't change.
While each of the latter bills may change from week to week or month to month, a fixed expense stays the same for at least a 12-month period. Flexible expenses may change each month or only occur during certain times of the year.
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Personal Fixed Expenses
When reviewing a personal budget, several fixed expenses reoccur each month. These expenses include rent or a mortgage payment, car insurance premiums and personal loan payments.
Over the course of an individual's lifetime, these numbers may vary depending upon inflation, whether the person is renting or owns his own home, 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.
Flexible Personal Expenses
Flexible expenses can vary greatly from one person to another, depending on their stage of life and their lifestyle. Some people 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 Fixed Expenses
Business owners also have fixed expenses they are responsible for paying each month. These may include the cost of renting space, paying a mortgage on a building, leasing office or other machinery and property taxes. The company is responsible for paying these expenses even if the business generates few or no sales of goods or services in a particular period.
Salaries would likely fall into the fixed expenses category, unless employee compensation is structured as a base salary plus commissions or the employees are being paid on a straight-commission basis. As long as the number of employees stays relatively stable, the company payroll would stay in this category. Keeping careful track of these fixed expenses helps companies properly plan for the next year's budget, as well as project needed income from sales.
Business Flexible Expenses
A business's flexible expenses can vary widely from month to month, depending on the quantity of goods or services the business produces. These expenses are directly related to the volume of activity being performed by the company.
If the business is experiencing a busy season with a high sales volume, then the amount of flexible expenses will increase. During slower periods with fewer sales, the amounts spent on flexible expenses will decrease as well. Some examples of business flexible expenses would include raw materials of goods used in production, utilities and overtime costs.
When forecasting fixed and flexible expenses for personal or business purposes, it's a good idea to look at the previous year's total of all expenses in these broad categories. Based on these figures, you can calculate an average monthly estimate of expenditures.