Usually fixed costs are thrown in the same bucket with variable ones and this has… hmm, improvement potential. Could we split them better? Maybe like businesses do (sometimes they also don’t 😂):
Total Costs = Fixed costs + Variable costs.
But what is the difference? It is easy:
variable costs change much and fixed don't.
✍🏼 Time for a test. Do you think your groceries 🛒 are fixed or variable costs?
👀 Got your answer?
Ok, read on.
For companies their fixed costs do not change if they sell 100, 200 or 10.000 units. For example, they always need to pay the rent or salaries. Ok? But you are not a company, right, companies do not read blog posts.😎
You read this post and have at least some regular obligations, things you have to pay or go to prison, hehe. Rent or a mortgage, mobile, internet, Netflix, car insurance and gym membership? These are your fixed costs, cash you burn 🔥 in any case. You have a contract or a commitment with a fixed expense which you pay monthly, quarterly or annually.
Remember the groceries question? You replied they are variable costs, didn’t you?
👌 Correct, you genius!
🤔 No? If you think they are fixed, you are not alone.
But this is not a hill to die on. We agree to disagree, isn’t that nice?
It is true that we need to eat each day (=fixed), but some months we cook less, eat out more, or maybe buy more expensive potatoes (=variable). “But, mister, I am feeding my family 3x daily and this sounds fixed to me,” I imagine you thinking now.
True, you are not Bear Grylls and need to buy your food, so you could go: ok, I SWEAR THIS IS THE TRUTH AND NOTHING BUT THE TRUTH, but each month I spend at least XYZ€ for groceries. This amount would then be a part of fixed costs. Possible.👍🏼
Your groceries are at least to an extent variable cost, unless you are a robot, spending the same each month.
ok, and now what?
In sum: Your fixed costs is the cash you burn IN ANY CASE even if you stay in a cave for a month. Some contracts, say car insurance, are paid annually; this makes it harder to get that exact monthly number, no?
And guess what. We all almost surely underestimate our fixed costs, because … who has all the contracts and costs in their mind? Who is adding every annual subscription or a contract to their monthly expenses? Only robots. And you are not a robot.
💰 So what are your current monthly fixed costs? Find out with fixxo.
And why should you know that? We got you covered *checks notes* in the coming week.
