What Is a Flexible Expense?
A flexible expense is a discretionary purchase that can be altered or eliminated without a significant downside. These are non-essential expenses that stand in contrast to fixed expenses. Flexible expenses should be included in a budget to manage an individual's overall finances. Economists often use the term consumer discretionary spending to describe flexible expenses.
- In personal budgeting, a flexible expense is a non-essential expense that can be cut back or eliminated.
- Flexible expenses stand in contrast to fixed expenses, also known as inflexible expenses.
- Even inflexible expenses can contain flexible components, such as choosing more affordable substitutes.
- To create a budget and stick to it, it is critical that both fixed and flexible expenses are included.
- To note your flexible expenses, review your credit card and checking account statements every month to see what non-essential items you are spending money on.
Understanding a Flexible Expense
When financial advisors counsel individuals, they routinely ask them to estimate their expenses, separating those that are necessary and non-negotiable, like mortgage and car payments, and those that are flexible, like entertainment costs. Entertainment costs can usually be broken down further into categories such as a cable television subscription, music downloads, dinners at restaurants, and vacations.
Knowing where the money is going, and separating the flexible from the inflexible, can help people cope with a budget that is stretched to the limit or beyond. Even some apparently inflexible costs, like groceries, may include flexible components, like pre-cooked entrees or the most expensive cuts of beef. There are always more affordable options to inflexible expenses, such as purchasing a Ford instead of a BMW.
The contemporary consumer seems to be faced with an extraordinary range of goods and services that are available at prices from discount to super-premium. A consumer can buy a leather handbag for $20 at a warehouse store or spend $40,000 to $50,000 on a single Hermes Birkin bag. Somewhere in between probably works for the budgets of most people.
But most consumers make less budget-busting decisions every day: whether to buy the generic or name-brand aspirin; whether to go out for coffee or make it at home; whether to join a health club or run in the park.
Most consumers know what they should do if they need to keep their expenses down. But it can be helpful to list all of one's flexible and inflexible expenses in order to really understand where all the money is going.
How to Manage Flexible Expenses
The first step in managing flexible expenses is to discover what they are. One can go over their checking account and credit card statements to see what they spend their money on over a month. They can break the categories down into flexible and inflexible expenses and start noting what the flexible expenses are. From there, they can make a conscious effort on eliminating them or adjusting the recurring flexible expenses.
Though a flexible expense may be recurring, the amount spent and the decision to incur the expense are still matters of choice. For example, if a household elects to order a cable or satellite television service, the cost recurs monthly.
The expense may be reduced by opting for a plan with fewer premium channels. The consumer may "cut the cord" and use an à la carte, Internet-based streaming service for a lower monthly cost than the bundled packages offered by satellite and cable companies. Or, the truly budget-conscious can buy an inexpensive digital antenna and watch broadcast television for free.
Even the cost of utilities such as electricity may be considered a flexible expense. Turning off unused lights and appliances, using less powerful light bulbs, and hanging laundry out to dry instead of using a dryer are ways to reduce power consumption and household costs.
In addition to recurring expenses, there also are periodic expenses. A vacation or a new bicycle would be examples. At these junctures, it is important to evaluate your financial condition. Is a new bike needed or can the current bike be repaired at a much lower cost? Is this vacation in a foreign country necessary or would traveling somewhere local be as enjoyable and half the cost? Being savvy with your expenses can help you save.