Variable expenses fluctuate based on consumption, while fixed expenses remain constant, making budgeting for them easier. Adjusting fixed costs can lead to long-term savings without major lifestyle changes.
By Brad Nakase, Attorney
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When a lot of expenses are outside your control, it’s hard to feel like you’re managing your money well. Vehicle payments and other fixed costs tend to remain constant over time, but variable costs are going to fluctuate.
You may have greater leeway in your budget with variable costs as they aren’t necessarily as predictable as set ones. Let’s compare and contrast these two kind of costs so you know what to expect and how to budget for them.
Examples of variable expenses include things like food and movie tickets, which might alter in price over time. It could be difficult to estimate your spending because these prices might change over the course of a week, a month, or even a year. You can’t live without certain variable costs, like food, but you can live without others, like movie tickets.
Examples of variable costs
You are likely familiar with the following forms of variable expenses:
Prices can change (for example, if the bus transit cost in your city goes up) or they might fluctuate based on the quantity and frequency of purchases. Assume, for the sake of argument, that the $1 blueberry muffins sold by your local bakery are legendary. Spending an average of $4 a month on muffins is reasonable, but you might splurge and spend $10 or $15 in a single month.
Certain variable costs are applicable to each of these cases. Gas, like other utilities like electricity and water, may be expensive depending on your consumption and the rates that fluctuate. Clothes, vacations, Christmas gifts, and restaurant meals are a few more examples.
Costs that are considered fixed tend to be those that occur frequently and don’t fluctuate much in terms of their monetary value. It is usually easier to budget for fixed costs as opposed to variable ones because of how predictable they are.
Examples of fixed costs
Common types of fixed costs include:
It is possible that a large portion of your variable costs will be easy to anticipate. Therefore, you could find a trend in your credit and debit card bills from the prior year. Say, once every four weeks, you visit the barbershop for a trim. Is it possible to get six weeks out of a haircut? That would save you around $120, or three haircuts at $40 each.
You may also make educated guesses about your usual spending habits by looking at the numbers from the previous year for each category of variable expenditure. Expenses like food, utilities, and transportation may all have their own designated sections. The next step is to split last year’s total spending in each of these areas by 12. After that, you may allocate a certain amount per month to cover each variable expenditure.
If you’d like, you may even set up a savings account specifically for each kind of variable spending. Each category’s remaining monthly budget might be better seen in this way. Additionally, it has the potential to transform unpredictable costs into predictable monthly budget items, similar to fixed spending.
Keeping an eye on fixed spending is another typical piece of budgeting advice. You may prepare ahead of time if you know that your insurance premium is going up next year. Additionally, cancel any subscriptions you may have been paying for without realizing it. You may avoid paying for services you don’t use if you monitor your monthly bills.
The most important thing about budgeting is to make adjustments as necessary. This applies whether you’re setting spending restrictions, prioritizing costs, or just keeping track of your money. You should probably discover alternative strategies to save money if you realize that you’re often going overboard in one category. Whatever your financial objectives may be, they may be more easily attained with careful management of both fixed and variable costs.
It only takes a few clever tricks to help you create and keep to a budget. While reducing variable expenses can seem like the better option in principle, reducing fixed costs could end up being the more practical choice in the end. That’s because once a choice becomes ingrained in your routine, it becomes more difficult to change.
On top of that, it may not seem like a sacrifice compared to reducing your expenditure on entertainment. Reducing your fixed costs will lead to savings without your having to do anything extra. You might not even have to drastically alter your current way of life to have access to the extra cash you need to put toward reducing debt or retirement savings.
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