Variable Expense

Variable expense summary:

• Variable expenses are costs that differ from month to month.

• While variable expenses may differ, you can predict many of them to some extent.

• Budgeting techniques like keeping some money in reserve and using credit selectively can help you manage variable expenses.

Variable Expense Definition and Meaning

Variable expenses are those that can differ from month to month. The differences in amount can make budgeting less predictable. However, that same variability can also give you some flexibility in making ends meet.

Key Attributes of Variable Expenses

Variable expenses are things that you regularly spend money for, but the amounts may differ significantly from month to month. 

Those differences might be because of how much you spend. They may also be because you have some flexibility in how much you have to pay every month.

The tricky part about variable expenses is that you have to leave room for them in your budget, but you can’t always be sure exactly how much you’ll need. However, if you learn to manage that variability, it can work in your favor. It can help you cut expenses at times when money is especially tight. 

Examples of Variable Expenses

Here are some examples of variable expenses:

• Grocery costs

• Utility bills

• Medical bills

• Credit card payments

• Spending on entertainment

• Transportation costs

• Clothing purchases

• Repairs

While these expenses all vary, some are more unpredictable than others. For example, your grocery costs may change from week to week, but over time the amount you spend will generally fall within a fairly predictable range.

On the other hand, medical bills and repairs can come completely out of the blue. Not only are these unpredictable expenses, but they also tend to cost a lot more than your normal expenses.

The other thing about variable expenses is that you have more choice about some of them than others. Your grocery bills may vary, but you have to buy food regularly. On the other hand, entertainment costs are things you can do without if necessary.

Managing Variable Expenses

So how do you budget for variable expenses? Isn’t that like trying to predict the unpredictable?

To some extent that’s true. Then again, coping with the unexpected is a big part of life. There are a few ways of making variable expenses more manageable.

Figure out what’s normal

Look at your spending history. For example, your grocery bills may jump around from week to week. However, if you look at several months’ worth, you can figure out the average. You can also see what the highs and lows are. Knowing the average and the extremes can help you budget how much money you’ll need for expenses that change but happen regularly. 

Identify which expenses are essential

Not all expenses are equally necessary. Some costs are variable and you have no choice but to pay them. Others, like dining out, you can skip if money’s tight. Recognizing which expenses you can do without can help you find money in your budget for unexpectedly large essential expenses.

Keep some money in reserve

Try to leave some room in your checking account to handle the highs and lows of certain expenses. For example, if you happen to have a light grocery bill one week, keep the extra money in your checking account to handle the next time the bill is higher. You should also try to build up an emergency fund to handle larger unexpected bills, like home or car repairs or medical costs.

Use credit, but pick your spots

Having access to credit can give you some flexibility to handle variable expenses. For example, using a credit card can help you handle times when you’re caught a little short. A loan can be a way of paying back a larger unexpected expense over time. Just remember to budget before you borrow and create a plan to pay back what you owe. That way you can use credit to smooth out variable expenses without always getting deeper in debt.