Variable expenses, also called variable costs, are expenses that can change over time. These costs depend on the use of products or services and can change depending on a variety of factors. When you e.g. Use your car more often, your variable expenses for fuel and vehicle maintenance increase accordingly. If you have guests over for an extended period of time, your variable food expenses may also increase.
Variable expenses are different from fixed expenses such as mortgage or rent, which remain the same over the life of your loan or lease agreement. Unlike fixed expenses, variable expenses can change significantly over the course of a week, month, or year.
Keep in mind that variable expenses are considered “variable” not because they are discrete or unnecessary, but because they fluctuate. For example, your grocery bill may vary from month to month, making it variable but not a discretionary expense because you can’t do without it.
Examples of variable expenses in the budget
Typical variable household expenses may include:
- Household maintenance costs, e.g. For painting or garden maintenance
- General expenses such as clothing, groceries and car maintenance
- Operating expenses such as fuel, electricity, gas and water
- Other expenses such as entertainment or restaurant visits
Many of your budget items are variable rather than fixed expenses, which can make budgeting a bit more complicated.
It’s important to track your expenses so you know where your money is going and can plan accordingly.
To offset fluctuating expenses, try to budget using the envelope method, which encourages you to keep each category under a certain dollar amount, but also allows you to carry over unused money to the next month. A savings account or emergency fund can also provide cash to fall back on if your variable expenses are higher than expected.
Financial software for variable expenses
Some financial software programs allow you to set a different amount for variable expenses from month to month. However, if you are using software that does not provide flexible amounts for each budget category, you can set an average: determine the cost for the year and divide by 12 to determine your monthly amount. If you spend less than budgeted on a variable expense, you should set that money aside to be ready for the months when a variable expense is higher than the budgeted amount.
You should also budget for and track other types of expenses, including discretionary expenses, which fluctuate in a similar way to variable expenses, and fixed expenses, which stay the same from month to month.
Reducing variable expenses
Reducing variable expenses is more difficult than reducing discretionary expenses. Deciding not to buy a more expensive pair of shoes is an example of reducing your discretionary spending. It’s a one-time decision that’s much easier to make than deciding to lower your grocery bill, which is a necessary but variable expense, because then you’d have to find a way to keep those cuts from month to month.
Here is where financial software that helps you manage your budget can help you. By setting your budget goals and then tracking your variable expenses, you can determine where (and for what reasons) your variable expenses are increasing. Then you can make strategic decisions about where to spend your money or cut costs. If higher costs appear out of nowhere, you’ll be prepared and won’t have to worry about where to find the money to pay for them.