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What You Need to Know About Fixed and Variable Expenses

 Published on August 30, 2019

Maybe you’re ready to take a deep dive into your finances and make a budget. But then you hit what feels like a brick wall: many how-to-guide use technical jargon you’ve never heard of before.

You may blame it on some of the overeager financial advisors online. They’re so involved in the world of personal finances they may forget some of their readers don’t share the same level of financial knowledge. They’ll talk about trimming back on fixed expenses and keeping an eye on variable costs without telling you what they are in the first place.

If you’re tired of being left in the dark, keep scrolling. Today, this MoneyKey blog post will try to shine a light on these common budgeting terms.

This guide will try to define each term clearly, so you know why financial gurus keep bringing them up. More importantly, we’ll show how each one fits into your budget, so you can make changes that improve your ability to save.

Fixed Vs Variable Expenses

You can break down most basic budgets into two main categories of expenses: fixed and variable. Everything in your budget falls under one or the other, with a few exceptions that we’ll go over later.

What is a Fixed Expense?

A fixed expense is anything in your budget that:

  • Costs the same amount of money for each payment
  • You pay on a regular basis — if not weekly or monthly, then by some other unchanging frequency

When it comes to your finances, fixed expenses are the things you can count on staying more or less the same. They’re expected bills and other obligations. Not only do you always know how much they cost, but you also know when you’re expected to pay them.

As a result, it may be easier to budget for these costs.

But sometimes, it can be a challenge. If they are, use online loans carefully. Although you may contact a direct lender of online loans for help when you’re short on cash and facing an unexpected emergency expense, you shouldn’t use online loans to pay for fixed expenses.  

Online loans are better suited for one-time emergencies when you need to tackle an unexpected emergency expense you don’t have the savings to cover. Online loans like installment loans are short-term options, not long-term solutions for chronic financial problems.

Fixed Expenses Examples

By now, you may have a pretty good idea of what the fixed expenses are in your budget.

To make sure you don’t forget any, we’ve compiled a list of the fixed expenses you’d find in a typical budget:

  • Rent or mortgage payments
  • Condo fees
  • Monthly property taxes
  • Car payments
  • Subscriptions, including streaming services and magazines
  • Cable bill
  • Gym memberships
  • Insurance premiums
  • Bank fees

woman with pony tail wearing grey tank top holding dumbbells in both hands

What is a Variable Expense?

A variable expense is anything that:

  • Fluctuates in amount
  • Doesn’t have a regular billing period

Compared to fixed expenses, variable costs are harder to pin down. But don’t worry — once you get used to the concept, you may have an easier time identifying the variable expenses in your budget.

Variable costs often make up the spending decisions you make every day, like the money you feed into a vending machine or spend on rideshare trips. But they may also represent some of the necessities in your budget, too.

Generally, you may have some semblance of control over how much you spend on something if it’s a variable expense. it.

Take the vending machine at work. Prices vary from one snack to the next, so your choice between soda and chips affects how much you pay. You also choose how often you visit the vending machine for a sweet or salty treat.

The point is, your habits have a direct influence on what you pay on variable expenses.

Variable Expenses Examples

barber in black dress shirt holding comb and hair clippers giving a man with a beard a fade

If you’re ready to list your variable expenses, take a look at our list to make sure you don’t forget any of the following:

  • Groceries
  • Toiletries and other personal care items
  • A personal line of credit or credit card payment
  • Hobbies
  • Gas
  • Takeout
  • Entertainment
  • Haircuts
  • Babysitting
  • Clothes shopping
  • Parking

Every budget is different, so yours may have fewer variables costs than those listed. Or, you may have twice as many!

What if an Expense Doesn’t Fit Either Category?

You may have noticed a major spending category is absent in both lists.

Utilities don’t fit neatly into either category because:

  • The amount you pay depends on your usage
  • They arrive on a fixed payment schedule

It’s a little harder to budget for something that changes every month.

Learn how to control your utility bills

Back in October ’18, we shared 12 ways you can lower your consumption that result in a lower utility bill. They range from small changes to your daily habits to larger investments in eco-friendly appliances, so anyone can make a difference — regardless of your budget! Check them out and see how much you can lower your usage and your bills.

Avoid phone overage charges and make your phone bill a fixed expense

When it comes to utilities, your phone bill is a unique case depending on your plan and your usage. It starts as a fixed expense. You owe the same amount of money at the same time each month — whether you have a contract or prepaid account.

smiling woman in striped blouse holding black phone standing between two people with phones

However, there’s a chance it could become a variable expense. If you have a contract, you may have limits for your data you may have to pay penalties if you go over your limits.

Paying attention to your usage could help you save. If you find it hard to keep track, there may be ways to limit your data usage through your phone. With these restrictions in place, your phone won’t use cellular data once you hit your threshold.

How to Calculate Variable Expenses

If you’re like most people, variable expenses make up a large portion of your budget. To see just how much you’re spending on these costs, the answer may be in your past bank statements.

You’ll have to track your past spending habits and separate them into fixed vs variable expenses.

woman holding pen using calculator with a stack of invoices

Start by tracking your monthly spending and subtract the total from your income. Hopefully, you’ll have some money left over instead of being in the negative. You’ll then what to separate your variable expenses from your fixed expenses which should help you estimate how much you spend on your variable expenses. You can then try to determine if this amount aligns with your budget.

How to Find Total Variable Cost

Once you have a list of variable costs, add them up. Do the same for your list of fixed expenses, then compare these sums to how much money you earned over the same time period.

This exercise gives you a wide-angle snapshot of your finances. It lets you see the long-term impact of your spending.

Ideally, you should have leftover money once you subtract your variable and fixed costs from your earnings. If you don’t, you need to cut back on your expenses.

Divide Expenses into Individual Spending Categories

This new perspective on your spending may reveal you spend a lot of your income on variable expenses. This may not be the best use of your cash, especially if it prevents you from saving.

If you want to strike a balance between spending and saving, you’ll have to cut down on some of your variable expenses. To see where you could free up more money, try grouping your variable spending under common categories.

For example, spending on UberEats, groceries, and the vending machine would all fall under the “food” category. Concert tickets, movie tickets, and drinks with friends would fall under the “entertainment” category.

close up on a person’s hand holding pen writing in a notepad

Once you assign a label to each purchase or bill, you’ll see which category uses up a lot of your cash.

Any flagged categories may potentially be a major source of savings. Remember, variable costs are expenses you have more control over. If you commit to a plan, you can reel back on what you spend on these categories.

How to Find Savings in Fixed Expenses

Variable costs are easy sources of savings, so they’re often the first expenses that people cut out of their budgets. But don’t feel as though they’re the only way to save.

Despite what fixed implies, it doesn’t mean these expenses are permanent fixtures in your budget. You may be able to reduce what you spend on fixed costs. 

Find flagged fixed expenses by categorizing them the same way you did with your variable costs. For example, use a housing cost label for things like rent, house or rental insurance, and property taxes.

Trimming these expenses is easy

Some of the easiest fixed expenses you can tackle right away include:

  • Cable: Cut the cord and rely on one or two subscriptions to watch your favorite shows.
  • Gym membership: You can workout at home for free without investing in expensive equipment.
  • Subscriptions: Don’t overload your account with subscriptions to every streaming service, music app, and meal prep service. Cancel most of them, leaving just one or two of your favorite ones.

Scaling back on these fixed costs may take more time

Some of the more challenging fixed expenses may involve a little more work, but they’re still totally doable — like:

  • Insurance premiums: Canceling these outright is not a good idea, but you can research companies that offer more affordable premiums.
  • Bank fees: If you’re losing money in monthly banking fees and other charges, shop around for banks that offer free checking accounts or credit unions.
  • Rent: If housing costs are putting your budget in a bind, relocating to a more affordable neighborhood could be worth the cost of moving. If you aren’t near the end of your lease, check to see how much the penalty is for breaking it. It may be less than what you’d pay in rent over the course of a year.

How Much Should I Save Each Month?

There’s a point to hacking away at your fixed and variable expenses. Once you slash these expenses from your budget, you’ll have more cash to put aside in an emergency fund or specialized savings account.

Just how much cash you should save may be different depending on your goals.

As a general rule, you should aim to save roughly 20 percent of your monthly income.  This is a balanced approach to your finances, allowing you to set aside savings or pay down your student loan without jeopardizing other bills.

If a goal of 20 percent is too hard for you, don’t be discouraged. Any savings is better than none!

How Much Should I Save in an Emergency Fund?

An emergency fund is there to help you when your finances go sideways. This rainy-day fund can help you cover an unexpected bill without the help of online loans. It can also help keep you afloat during times of distress, like if you’re too sick to work or if you lose your job.

The recommended amount you should have saved varies, as many financial experts recommend you save between three to six months worth of wages in your emergency fund, while some, like Suze Orman, recommend you save 12 months’ worth of wages.

pink piggy banks with black eyes floating through grey space

A year’s income is a daunting goal upfront, but don’t let it intimidate you. It’s a long-term goal that you’ll achieve after months — or even years — of budgeting. The important part is that you’re saving something.

You may be able to accelerate your savings plan by reviewing your budget regularly to examine your fixed vs variable expenses. This helps reveal bad spending habits as they crop up. If you act quickly, you may be able to cut them out of your budget before they affect your savings.

Most of us have a few things in our budget that we can live without. You probably have some too — whether it’s a weekly takeout habit or paying for a gym subscription you never use. These fixed and variable expenses can help you save money.

Now that you know what these terms mean, you can dive into any budgeting guide and follow along without scratching your head. Devote some time to going over your fixed vs variable expenses. You may be able to free up a lot of cash by trimming the fat from your budget.

Posted in: Financial Tips

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.

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