When people used to talk about budgeting, they tended to separate household expenses into fixed costs and variable costs. Most budget experts kind of shrugged off the fixed costs and concentrated on helping you reduce your variable costs, such as entertainment, groceries and clothing. The fixed costs were expenses such as your mortgage or rent, automobile insurance, life insurance, utilities and so forth that were “fixed” or remained always the same.
There are no fixed costs
An interesting change that has occurred in the US and that is that there really aren’t any more fixed costs. All your living costs have become variables.
If you don’t think this is true, think about your mortgage. You might have a 30-year mortgage at a fixed rate of 5% but you don’t have to stay with it. You could refinance at today’s rate of 3.250%. And instead of getting a 30-year mortgage, you might choose a 15-year mortgage or even a 5-year adjustable rate mortgage (ARM). There are ARMs available today that have an interest rate of 1.500%. This can be particularly appealing if you think you won’t be living in the same house for more than five years. Even if you believe you will be there for more than five years, you could decide to gamble and get in ARM with the hope that in five years mortgage interest rates will still be as low as they are today. And let’s face it. An interest rate of 1.500% is going to save you a lot of money vs. 3.250%.
Insurance isn’t a fixed cost
If you think that the cost of your auto insurance or life insurance is a fixed cost, think again. Today, you can go online to a site such as esurance.com, type in some information about you an your automobile and get quotes from half a dozen different insurers practically overnight. This gives you the opportunity to compare policies and coverages side-by-side without ever leaving your house.
If you have a family, you probably have or should have insurance. Today, if you’re 40 years old and in good health, you can go to SelectQuotes (selectquote.com) and get multiple quotes by filling in just one application.
A little trick about car insurance that can save you big money
When an auto insurer gives you a quote on your insurance, a lot of that will be based on your car. The safer the car, the less you’ll pay for auto insurance. You can go to the site, iihs.org, and see the safety ratings for almost every car made. Click on Acura MDX and you’ll find it is rated G or good for all test results. In comparison, the Nissan Versa rates just an A (acceptable) on side impact tests for model years 2007 through 2010 and roof strength tests for the same years. This means it’s likely to cost more to insure the Versa.
Your utilities aren’t fixed costs
Even though the cost of gas, oil and electricity continues to go up every year, there are things you can do to reduce those costs. You might keep your air conditioning off longer or use fans to keep your home cool. If you don’t have a programmable thermostat, be sure to buy one as this $60 investment could save you literally hundreds of dollars over the next year.