"Fix cost Reduce We create"
"Fix cost" is extremely important to our lives in ways we would never expect. Investors and salaried employees often face financial problems simply because they overlook it.
Let's say there's a salaried employee whose salary isn't enough for expenses, month after month, sometimes even relying on credit cards instead. How should they solve this problem?
90% of the answers would go in the direction of saving — eating less, eating cheap, skipping parties, going out less, reducing electricity bills, and cutting down on gas. This answer isn't wrong, but it's not entirely right either.
Some people earn 20,000 baht a month, pay 5,000 for a car, 9,000 for a house, 2,000 for credit cards, leaving 4,000 for monthly expenses. In this situation, are you still determined to find ways to cut general expenses?
The 80/20 Pareto law is an awesome problem-solving principle, but you're doing the opposite. You're trying to manage the problem by focusing on the 4,000 baht, which is only 20% of your income. That's why it can never be solved. The more you try to fix it, the more tangled up you get.
Another point — we humans have feelings. The more you save by not eating what you want, not meeting anyone to avoid socializing, not taking care of your family the way you'd like to, over time you'll feel a loss of positive energy. Try thinking back — do you have the same positive energy as you did 10 years ago? If the answer is "No", you need to do something differently.
If you're facing this problem, I recommend managing your FIX COST.
For car installments, ask yourself whether you truly need it (emphasis on truly — not just wanting to have it; desire alone isn't edible). If you didn't have a car, could you take the BTS? Even if it's a bit more inconvenient, isn't struggling every day worse than taking the train? Selling the car gets you 200,000 baht to keep for further investment, while also reducing your monthly Fix cost — wouldn't that be cooler?
Most people don't dare to sell their car for one simple reason — fear of losing face!!! They'd rather suffer in secret. But truly, lose face just once, tell your friends, and in 10 minutes they'll forget (and move on to gossiping about something else). But if you're afraid of losing face, you'll be hurting for a long time. Something to think about.
As for house installments, I understand wanting to keep it because the whole family needs to live there. If you sell, you'd have to rent anyway, and holding onto a house long-term isn't too damaging. Unless things are truly dire, no one wants to sell their home. "But we can reduce our installments."
Just walk into the bank. Go to about 5 banks, 5 colors, and tell them "I want to refinance my house" Which bank to choose? It's very simple. Choose the one with the lowest monthly installment in the long run (not just a promo with low installments for 6 months)
Shy to tell the bank? I'd like to emphasize again, banks are looking for customers. We go as their customers, and we're not doing anything wrong. No need to be shy. Let's go.
If you can reduce your house payment by 2000 or reduce your car payment, it means you'll have more money to spend each month, from 4000 to 11,000!!! Life gets much easier.
Let's talk about the investor's perspective
Investing during a period when sales are on target is fine. Profits will be sufficient to comfortably manage all fixed costs.
But what about periods when sales are poor? Business is a cycle. Especially when starting something new, everything is hard to go according to the plan you've set. But no matter what happens, fixed costs never stop. As the name says, "Fix"
Investments must always be wary of fixed costs. It's the scariest thing. Many giants have fallen because of it, and this kind of thing must be planned from the very beginning of investing.
Manage fixed costs as low as possible to reduce risk, and always have a Plan B for financial management channels to handle periods when business is not doing well. In cases where fixed costs are high—so high that we can't have a Plan B to manage them—don't invest. Go invest in something else.
If we don't plan ahead, we'll end up using emergency funds, and emergency fund interest is never cheap. It can easily become a long-term problem.
This is why fixed costs are so important. Whether we are salaried employees or investors, we must never forget to always plan ahead for management. If managed well, it might be like getting a new life, as the saying goes:
"Fix cost drops, we rise"
