Lesson 1 - Fixed & Flexible Spending

Objective: categorize all personal spending correctly into fixed or flexible expenses.

At this point in the program, you should have at least a month’s worth of spending tracked from the previous three lessons. In this cluster of lessons, we’ll work on creating a spending plan. Before we do that, we need to distinguish between flexible and fixed expenses. What’s the difference? Flexible expenses are those expenses that change from month to month; these can include non-necessities like discretionary or fun spending, clothing, charity, eating out, but it also includes some necessities like groceries, utilities, and medicine. Fixed expenses include primarily necessary expenses such as rent/mortgage, insurance, car payments and other loan repayments. What’s the practical purpose for separating those expenses? There are a couple reasons: for one, if you look at the three main components of a spending plan, income, fixed expenses, and flexible expenses, the most feasible to make adjustments to, if needed, are the flexible expenses, since earning more income and reducing the cost of fixed expenses are difficult in the short-term. Also, when you move on to that fifth and final step to changing behaviors, maintenance, the most important section of your spending plan to monitor will be those flexible expenses!

Example

Here's an example of a month's worth of spending:

5/2 - $1000 rent

5/3 - $89 groceries

5/7 - $20 sweater

5/10 - $80 car insurance

5/12 - $38 lunch out

5/21 - $15 movies

5/24 - $250 car payment

5/27 - $12 bowling

Flexible expenses – groceries, sweater (clothing), lunch out, movies (discretionary), bowling (discretionary)

Fixed expenses – rent, car insurance, car payment

Assignment

Use your personal list of tracked spending from lessons in the previous cluster.  Categorize all of your spending/expenses into either fixed or flexible expenses.

Complete this assignment in Microsoft Word - if you do not have access to Microsoft Word, contact your course facilitator. Once you've completed the assignment, email the Word document with the assignment to your course facilitator, who will provide feedback via email.