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Variable Expenses: Examples and How to Budget

what is a variable expense

Variable expenses can include essential expenses as well as discretionary spending. For instance, if you get sick, then a doctor visit may be a necessity that you need to cover. On the other hand, a discretionary expense means anything you budget money for or spend money on that you don’t necessarily need.

Variable expenses differ from fixed expenses, such as your mortgage or rent, that remain the same throughout the term of your loan or lease. Unlike fixed expenses, variable expenses can change significantly over the course of a week, a month, or a year. For example, saving money on renter’s insurance, homeowner’s insurance or car insurance may be as simple as shopping around for a better deal with a different insurer.

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In fact, many of your budget items might be variable expenses rather than fixed, which can make budgeting for them a little more complicated. Note that variable expenses are not considered “variable” because they are discretionary goods and services definition or unnecessary, but because they are fluctuating. For example, your grocery bill can differ from month to month, which makes it variable, but it is not discretionary because it’s not an expense you can do without.

It’s important to understand how much of your expenses are fixed and how much are variable so you can budget your money properly. Fixed expenses are always easier to account for because they don’t fluctuate as variable expenses do. This means that you can easily plan for them by setting aside money each month to cover the cost.

  1. You could also follow a pay-yourself-first budgeting approach, where you use money first to fund your goals and then work backwards to come up with money you have left over to deal with expenses.
  2. The envelope system is one budgeting method that can help you balance your variable expenses.
  3. Other examples include clothing, vacation costs, holiday gifts and eating out.

A business that has a high proportion of variable expenses can usually generate a profit on a low sales level. The reason is that there are few fixed expenses to be paid for in each month, making it easier to achieve a breakeven sales level. Just as with personal finance, in a small business it would help you to budget for variable expenses as well as to have a savings account with money set aside to cover higher-than-normal expenses when they occur.

What Is a Variable Expense?

With proper planning, even very volatile expenses won’t have to derail your business plans. Fixed expenses are very predictable because they’re the same every month. This could include items such as rent or mortgage payment, car payment, gym membership, or subscription services. Cellphone (if you have an unlimited plan) and internet bills, childcare, and insurance premiums are other examples of fixed expenses. Trimming variable expenses is more difficult than cutting discretionary spending.

what is a variable expense

Saving money on housing, on the other hand, might require you to move or refinance your mortgage. When making a budget, it’s important to know how to separate fixed expenses from variable expenses. While you can’t control the changing prices of categories such as gas and groceries, you can take charge of how you manage these costs.

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When setting prices, you should ensure that at least the variable expenses are included in the price. That way, a business will not lose money when each unit of a product is sold. If you want to save money on variable expenses, it may require some lifestyle adjustments. For example, cutting back or cutting out things like dinners out or new clothes are some simple ways to save. You could also save on groceries by planning meals, taking advantage of coupons or switching from name brands to generic. With debt repayment, you may be able to save by refinancing or consolidating bills.

The envelope system is one budgeting method that can help you balance your variable expenses. You start by assigning categories such as entertainment and transportation to individual envelopes. Then, allocate a certain amount of money to each one and spend only what you’ve designated.

Taking advantage of a 0% introductory balance transfer offer, for instance, could help you save money on credit card interest. This assumes, of course, that you’re able to pay the balance https://www.online-accounting.net/how-to-calculate-overhead-allocation/ off in full before the promotional rate ends. You could also consider refinancing student loans or consolidating debts with a low-interest rate personal loan to save money.

During mild months, you spend far less money on heating or cooling systems. One of the key elements to gaining financial stability is learning how to budget your variable expenses. Since they are unpredictable, variable expenses may come up when we least expect them and derail our spending plans for the month. Daphne Foreman is a former Banking and Personal Finance Analyst for Forbes Advisor. She has worked as a personal finance editor, writer, and content strategist covering banking, credit cards, insurance and investing. As a small business owner and former financial advisor, Daphne has first-hand experience with the challenges individuals face in making smart financial choices.

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