Fixed Expenses Should Be What Percent of Your Take Home Pay?

Fixed Expenses As a Percentage of Income

When setting a budget, it's important to consider both fixed and variable (changing) expenses. Fixed expenses include costs that do not change over time. Examples of monthly fixed expenses include: insurance premiums, the cable bill, the internet bill, your mortgage payment (if you’ve got a fixed rate), and childcare expenses. These expenses change very little (or quite possibly never) on a month-to-month basis. Insurance premiums generally rise over time. However, the insurance agent should provide you with an annual statement, listing each monthly bill for the next 12 months—-thus, you can plan in advance for all insurance payments.

Variable Expenses

On the other hand, expenses such as the electric bill, the water bill, groceries, clothing, school supplies, medical care, gifts, commuting costs, and travel and entertainment bills are variable. It’s much easier to budget for fixed expenses because you can plan in advance. Variable expenses are more difficult to account for, due to their unpredictable and changing nature.

Budgeting Fixed and Variable Percentages of Take-Home Salary

What percent of your take-home pay should you budget for fixed expenses? Answers vary, but I suggest budgeting no more than 40% of your take-home pay for fixed expenses. This leaves 20% of your take-home pay for variable expenses. The underlying assumption is that you spend no more than 60% of your take-home pay, leaving 40% for savings and investment.

If you can swing it, I suggest living on half your take-home salary. In other words: Spend no more than half of what you earn. Develop a budget that works for you and stick with it. Focus on saving and investing—-and use the rules above as general guidelines to follow.