Low Fixed Costs

IF YOU FIND IT TOUGH to save, the reason may not be lavish spending. Instead, there could be another explanation: Maybe your fixed monthly costs are too high, leaving you with little financial breathing room.

The biggest culprit is likely to be your mortgage or rent payment. For instance, if you live in a major city, it can be hard to find reasonably priced housing, even if you opt for a small place or a less desirable neighborhood. Alternatively, maybe you have boxed yourself in by committing to a slew of monthly payments, everything from car-lease payments to cell-phone plans to cable television.

Taken together, these fixed monthly costs can take a big chunk out of your income, especially if you’re early in your career and not yet making decent money. What to do? You might aim to keep your fixed monthly costs at 50% or less of your gross (meaning pretax) income—and the lower, the better.

Our Humble Opinion: Holding down fixed monthly living costs is perhaps the key contributor to financial success. If your fixed costs are low relative to your income, you will find it easier to save, you will be in better shape if you get laid off, you will need a smaller nest egg to retire in comfort and, if you grow weary of your current career, you’ll have the financial flexibility to take a job that’s less lucrative but perhaps more fulfilling.

Next: Cutting Spending

Previous: Fixed vs. Discretionary

Articles: Cut It OutNumber One Number and Where It Goes

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