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Fixed vs. Variable Expenses: What’s the Difference?

As you work to create a budget, it’s important to understand how fixed and variable expenses will impact your bottom line.

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Some expenses fluctuate from month to month, while others remain the same. Your payment for rent typically remains the same monthly, but how much you spend on groceries or your monthly utility bill changes constantly. Monthly expenditures that generally remain the same are known as fixed expenses, while variable expenses are those that change constantly. 

Understanding the difference between the role that fixed and variable expenses play in your life can help you create a budget that prevents you from overspending. It can also help you prepare for other monthly expenditures, such as debt repayment or saving for future expenses.

What is a fixed expense?

A fixed expense is a cost that always stays the same. As you look at your upcoming bills, you should already know exactly what you’ll pay for fixed expenses. For example, fixed-rate mortgages are among the most common ways to buy a home because the monthly payment remains the same for the entire life of the loan. Fixed expenses are helpful for budgeting because they take the guesswork out of the budgeting process. 

Fixed expenses generally include your essential living costs. You need a roof over your head, a safe place to send your kids while you go to work, and a set of reliable wheels to be able to get around town. Here are a few more examples of fixed expenses:

Examples of fixed expenses

  • Rent or mortgage payments
  • Car loan payments
  • Cell phone and internet bills
  • Insurance premiums
  • Gym membership
  • Monthly subscription services
  • Monthly transit passes
  • Property taxes (these may change each year due to fluctuating tax rates, but they’re still considered a fixed expense)
  • Childcare expenses 
  • Student loan payments

In addition to the fixed amounts you’re spending each month, it’s smart to look at saving as a fixed expense that involves paying yourself. If you opt to set aside the same amount of money for short-term savings and another chunk for retirement monthly, you’ll put yourself in a financially secure position. Though this isn’t a requirement, it’s wise to always pay your bills first before you pay yourself. 

What is a variable expense?

Variable expenses are the inverse of fixed expenses. A variable expense can look quite different each month, and right now, as inflation makes everything cost more, your variable expenses might be creating some major headaches. Variable expenses can make budgeting more challenging because you can’t predict an exact figure. Some variable expenses are offshoots of fixed expenses. For example, while your daycare bill is the same each month, you may also need to hire a babysitter for a few nights. The cost of the babysitter varies based on the number of hours you need and the worker’s hourly rate.

While variable expenses include a lot of nonessential costs, such as for hobbies and entertainment, there are also some essentials in this category, too. For example, you need to pay for heat in the winter, and you have to keep your refrigerator fully stocked. Here are more examples of variable expenses: 

Examples of variable expenses

  • Groceries
  • Utility bills
  • Gasoline or electric charging 
  • Babysitting services
  • Dining out 
  • Entertainment 
  • Travel expenses
  • Credit card payments
  • Self-care expenses
  • Home maintenance and repairs 
  • Healthcare and medical bills
  • Car maintenance

Tips for saving money on fixed and variable expenses

Most of your fixed expenses are inescapable -- you can’t exactly cut your house or car payments. However, you may be able to eliminate a few unnecessary fixed expenses. Those fixed monthly subscription services -- Netflix, Spotify, Hulu and more -- can really add up, so you might consider cutting some of them. Additionally, there may be opportunities to lower them by comparing other options. Can you find a cheaper cell phone plan? What about your car insurance and homeowners insurance? Perhaps a company will allow you to bundle them and save a chunk of cash versus your current providers.

Variable expenses present a real opportunity for saving. When it comes to groceries, you can buy in bulk or look for generic brand replacements at lower prices. For your utility bills, you can take small steps such as shutting off the lights and adjusting your temperature by a few degrees. Setting your thermostat back 7 to 10 degrees cooler than its normal setting for 8 hours a day can save you nearly 10% a year on your heating and cooling bill, according to the US Department of Energy. Something as small as closing your blinds on a hot summer day can really impact your monthly energy bill and generate tangible savings. 

There are plenty of nonessential costs that you can consider cutting altogether. Take a look at your spending summary from last month, and tally up everything you didn’t need. How much would you save if you made coffee at home instead of buying one at the cafe each morning? What would your savings be if you didn’t go out for lunch or dinner at all in the next month? If you want to save, you need to be comfortable making tough decisions that may require a few lifestyle adjustments. 

How to budget for fixed and variable expenses

As you craft a monthly budget, follow these crucial steps for managing your fixed and variable expenses.

Prioritize the essentials 

Your most important expenses are the ones you can’t afford to miss: your housing payment, car payment, childcare, insurance and minimum payments for student loans, credit cards and any other debts. Look at your monthly income, and set aside the money for these costs.

Keep track of your spending habits 

If you’re new to budgeting, look at your monthly expenses from the last few months to get a sense of how much you should set aside for other essential items such as your utility bills and gas for commuting to and from work. While these costs will fluctuate, it’s helpful to have an estimate of what you’ll need to spend.

Don’t be afraid to eliminate unnecessary expenses 

As you’re looking at your spending history, take time to evaluate where you’re overspending – particularly in the nonessential entertainment and dining categories. A lot of budgeting apps will create a breakdown of categorical spending. This can paint a picture of where you can find opportunities to reduce your costs.

Plan for the worst 

While your variable expenses may look quite similar on a regular basis, there are surprise variable costs that arise from time to time. A broken air conditioner or a car check-up that reveals the need for new tires or brakes -- there are loads of one-time, unexpected expenses that can create big challenges for your budget. Avoid those headaches with an emergency fund that provides a safety cushion. If you have the space in your budget to set aside a few dollars in an emergency fund each month, you can prepare for the unexpected ahead of time. 

The bottom line

Managing money can feel overwhelming, but it doesn’t have to be so stressful. With a solid grasp of your fixed and variable expenses, you’ll be able to stay current on all your bills, find ways to reduce your spending and save for the future

David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
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