What are Variable Expenses? How to Keep Them in Check

Think about everything you spend your money on in a month. The things that come to mind are probably rent or a mortgage, car payments, groceries, and maybe some entertainment expenses.

But there are other costs that can vary depending on what’s going on in your life. Understanding these costs is important when you’re trying to create a budget or stick to one. In our guide, we’ll take a closer look at what variable expenses are and how you can manage them better.

Let’s dive in!

What Are Variable Expenses?

Variable expenses are those that can change from month to month, depending on things like how often you go out to eat or whether you have a family vacation planned.

Such expenses are hard for most people to track and budget for because they are unpredictable. Unless you keep track of your grocery receipts or use a budgeting program, you may not know exactly how much you spend on food each month. This is why it’s possible to spend more than you intended in certain areas without even realizing it.

So what are some variable expenses examples? Here are just a few:

Food: This one is pretty obvious- the amount you spend on food each month will vary based on how much you cook at home and how often you eat out.

Travel: If you’re lucky enough to live close to family or friends, your travel expenses might be low. But if you have to fly across the country for a visit, your variable costs will go up.

Clothing: Do you tend to buy new clothes every season, or do you stick to basics and only buy what you need?

Entertainment: How much do you typically spend on things like movies, concerts, or eating out?

Now that you know what variable expenses are, how can you calculate how much they’re costing you each month? There’s no one-size-fits-all answer to this question, but here’s a basic variable costs formula to help get you started:

Variable Expenses = (Average Monthly Spend) x (Number of Months in the Year)

For example, let’s say you spend an average of \$200 on food each month. That means your annual food costs would be \$2400 (\$200 x 12 months).

Reducing Variable Expenses

Now that you know what your variable costs are, it’s time to start thinking about ways to reduce them. Here are a few ways to get started:

Track your monthly spending: This is the first step to understanding where your money is going. If you know where your money is going, you can start to make changes.

Set a budget: Once you know how much you’re spending each month, it’s time to set a budget. Knowing how much you can realistically spend each month will help you make better choices about your spending.

The envelope system: This is a great way to budget for variable costs like food and entertainment. With this system, you set aside a specific amount of money each month for each category of expense. When the money runs out, you’re done spending!

The 50/20/30 rule: This rule can help you stay on track with your spending. It recommends allocating 50% of your income to essentials, 20% to savings and debt repayment, and 30% to flexible spending.

Know your baseline: In order to reduce your variable expenses, you need to know what your baseline is. This is the amount you typically spend each month on things like food, travel, and entertainment. When you know your baseline, you can start to look for ways to reduce it.

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Fixed vs. Variable Expenses

Now that you know what variable expenses are, it’s important to understand the difference between fixed and variable expenses

What are fixed expenses?

The term “fixed expenses” refers to costs that don’t change and remain constant within your budget. Although they can fluctuate on some occasions, it’s very uncommon. For instance, fixed expenses like cell phone plans or rent are often subjects of change.

Fixed costs are paid at the same intervals on a monthly basis, but they can also be paid weekly, quarterly, biannually, or annually.

It’s important to understand the difference between these two types of expenses because it can help you make better choices about your spending. For example, if you’re trying to save money, you might want to focus on reducing your variable costs. But if you’re trying to pay off debt, pay extra attention to your fixed expenses.

Bottom Line

No matter what your financial goals are, understanding your variable expenses is an important step on the road to success. So start tracking your spending today and see how you can reduce these costs in the months ahead!