What are variable expenses?

What does a variable expense include?

A variable expense is a cost that can change from one month to the next. These expenses can be higher or lower every month, but the key characteristic of a variable expense is that it fluctuates from period to period. When budgeting, its opposite is a fixed expense (one whose rate is the same every month, such as rent and loan payments).

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn more

Often, variable expenses are recurring. Gas and electricity bills, phone and data usage, and others like these are billed every month. Yet their rates may be different based on how much you use, what’s in demand, and even by season. For example, your electric bill may be more expensive in the summer when the air conditioner is on all day, but cheaper in the fall when AC isn’t needed.

Disposable income is not the same as a variable expense: this is money left over after you have paid for necessities. It can include broad categories such as groceries, entertainment, and travel. If you’re a movie buff, the amount you might spend every month on tickets might vary. Once Oscar season rolls around, be sure to budget the uptick in this variable expense in your monthly budget planning.

Lastly, if you have active sports and hobbies, these variable expenses may require different amounts of investment per month. Maybe you love skiing! You’re certainly going to budget less toward this sport in the summer than when lift tickets go on sale. A helpful financial hint is to start saving in the off-season so you can still enjoy what you love.

How do variable expenses differ from fixed expenses?

As described above, variable expenses can change due to a variety of factors. Fixed expenses, on the other hand, are regular costs that remain the same: each month, you pay the same amount for rent or mortgage, car payments, and insurance. While these are necessary standard-of-living costs, fixed expenses can also include your interests, such as gym or museum memberships.

How to plan for drastic variable expenses

Variable expenses can include costs that may fluctuate drastically. You might go months without needing to perform extensive home and car maintenance, but something unpredictable might happen, such as a storm or an accident, affecting how much you’ll be able to spend for these categories. Similarly, healthcare and medication costs can come quickly and shoot up in price, especially in case of an emergency.

In life, it’s inevitable that you’ll need to pay for these categories—no matter how good your insurance is. Be sure to set up an emergency savings fund that you can put money into every month, so you won’t be caught off-guard in an already stressful situation. You can also transform the unpredictability of a variable expense into the reliability of a fixed expense.

How you can effectively manage variable expenses

Managing your variable expenses is an essential aspect of financial planning. It’s also much trickier than fixed expenses: because they vary from month to month, they’re harder to budget for. You might not know exactly how much you’ll need to spend on a utility next month, for example.

One effective way to control your variable expenses is by tracking your existing spending and predicting what you’ll spend in different categories. Save your monthly income toward covering these predictions and be prepared to adjust your budget to accommodate these bills. If you find yourself spending more one month, you can easily cut back on non-essential needs like dining out, or switch to a less expensive phone plan.

Set a realistic budget for your variable expenses, so you can limit your spending and prioritize your essential needs. This way, you can avoid overspending and stay within your means. Use budgeting tools like Excel to keep track of your variable expenses, allowing you to identify areas where you can cut back or adjust your spending.

Variable expenses are an integral part of your financial plan that can change from month to month. By understanding what they are, you can tame your credit card spending, prioritize your essential needs, and take charge of your finances.