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One of the most important elements of achieving financial freedom is knowing how to budget. Almost everyone wants to budget better, but very few succeed in building a plan that is easy to follow and holds you accountable.
This is largely because of the confusion around expenses. Knowing how much money is entering and leaving your bank account fluctuates monthly and is difficult to track.
Expenses are far from straightforward and are hard to understand. There are a few different types of expenses, each requiring its own considerations.
Today we’ll be looking at variable expenses so you can better understand where they fit into your financial planning.
What are variable expenses? How do you determine what is and isn’t a variable expense?
This article will give you all the information you need to build a budget that includes variable expenses.
To start, let’s define variable expenses.
What is a Variable Expense?
Variable expenses are all the expenses you face that aren’t set in stone.
In contrast to fixed expenses, variable expenses are not recurring, nor are they predictable. They change depending on several factors.
When budgeting, variable expenses tend to be the component that trips people up, as they are unexpected expenses.
How Variable Expenses Work
Variable expenses vary depending on several different things.
The most obvious influence on your variable expenses is your lifestyle and financial choices. Going out to eat frequently is going to be more expensive than staying home and cooking.
When budgeting for variable expenses, it’s helpful to set limits on the activities that increase the total amount you spend each month.
Your personal choices aren’t the only factor in your variable expenses, though. The market changes, which leads to fluctuations in expenses even if you are buying something you bought last week. This is known as inflation.
Additionally, there may be unforeseen emergencies that pop up. These are (hopefully) infrequent, but they can significantly impact your expenses, nonetheless.
>> More: What Is the 50/30/20 Budgeting Rule?
Are Variable Expenses Daily, Monthly, or Annually?
While variable expenses can be measured in any timeframe, the most common period used is monthly.
Measuring variable expenses day to day is unnecessarily tedious and doesn’t allow you to forecast or prepare.
Measuring variable expenses weekly is also helpful. This allows you to set a weekly limit on how much you spend, keeping you within your budget.
Examples of Variable Expenses
Variable expenses tend to cover most non-essential things. Entertainment, new clothes, or a night out downtown are all examples of variable expenses.
Variable expenses aren’t exclusively non-essential, though. Groceries are variable expenses because, while essential, they vary in price depending on the market and what you buy.
One-off emergencies are also variable expenses. If you suddenly must fix a leak in the roof, the cost would be considered a variable expense.
How to Factor Variable Expenses in Your Budget
The best way to budget for variable expenses is to start by factoring in your fixed expenses. Once you know how much you spend on fixed expenses every month, you’ll have the base upon which you can build a budget.
From there, look at your expenses over the last few months. Notice how much you tend to spend and where you could cut back.
Decide how much you would like to save and work backward from there, making your budget for variable expenses fit the plan.
Once the plan is in place, stick to it. Monitor how much you’re spending and adjust so that you meet your weekly and monthly goals.
>> More: Fixed vs. Variable Expenses
Can Variable Expenses be Avoided?
While some variable expenses can be avoided, they cannot be avoided altogether. Moreover, your individual variable expenses will change as you age, have kids, get married, etc.
Tips for Managing Variable Expenses
#1. Don’t Overspend
Most people who struggle to manage their variable expenses simply spend too much. Simply monitoring your spending and being conscientious about purchases can significantly help those who struggle to budget.
#2. Only Buy things You Absolutely Need
It’s very easy to buy frivolous things but doing so will radically alter your variable expenses. Stick to buying only what is necessary, and you’ll find that your budget has a lot more wiggle room than you may think.
#3. Create a Budget
Planning is vital to managing variable expenses. Having a budget in place will encourage you to think about your spending, which in return will limit it.
#4. Track Your Spending with a Budgeting App
If tracking your spending through bank statements or receipts is too much, consider downloading a budgeting app.
These apps (such as You Need A Budget) can analyze your finances to help you create a plan and make it easier to understand where your money is going.
Bottom Line: What Is a Variable Expense?
Variable expenses are the easiest expenses to manipulate. They include expenses that aren’t consistent from month to month.
Being conscientious about spending and sticking to a well-planned budget is vital to managing your variable expenses. Doing so can go a long way towards financial stability and freedom.