Your fixed costs form the foundation of your financial life. These are the essential expenses you need to live, such as rent, utilities, groceries, insurance, and transportation.

For someone earning $5,000 per month after taxes, fixed costs should ideally range between $2,500 and $3,000. This would cover your rent or mortgage payment, basic groceries, utility bills, cell phone plan, and other essential expenses. If you live in an expensive city like San Francisco or New York, your fixed costs might creep closer to 65-70%. That’s okay—the key is to know your actual numbers and plan accordingly.

To make managing fixed costs easier, set up automatic payments wherever possible. For example, schedule your rent payment to transfer directly to your landlord each month, set up auto-pay for utility bills from your checking account, and charge your cell phone bill to a credit card. This ensures your bills are paid on time and eliminates the mental load of remembering payment dates.

It’s also a good idea to do a quarterly audit of your fixed costs. Take a close look at recurring expenses to identify opportunities for optimization. For instance, you might negotiate a lower rate on your cable bill, switch to a more affordable cell phone plan, or adjust your grocery shopping habits to save hundreds of dollars each month. Small changes in your fixed costs can add up to significant savings over time.