How Variable Expenses Affect Your Budget
Variable expenses, also called variable costs, are expenses that can change depending on your use of products or services; they are somewhat unpredictable. For example, increased use of your car produces a corresponding increase in your variable expenses for fuel and car maintenance. If you have guests staying over for an extended time, your variable expense for water might increase.
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 from week to week, month to month, quarter to quarter or year to year.
Variable expenses are not considered "variable" because they are discretionary; for example, your grocery bill can fluctuate from month to month, but it is not discretionary because it's not an expense you can do without. They are called variable expenses because the amount you spend on them can change significantly from one period to the next.
Examples of Household Variable Expenses
Typical household variable expenses include the cost of household maintenance like painting or yard care; general expenses such as clothing, groceries, and car maintenance; and resource expenses such as fuel, electricity, gas, and water.
Finance Software for Variable Expenses
Some personal finance software lets you set a different amount from month to month for expenses that vary, but if you use software that doesn't include flexible budget category amounts, use the average cost for the year divided by 12 for your monthly amount. If you spend less on a variable expense than you budgeted, it's a good idea to put that money into savings so you're prepared for the months when a variable expense ends up being higher than the budgeted amount.
You'll also want to budget for and track other types of expenses, such as discretionary expenses, which fluctuate in similar ways to variable expenses, and fixed expenses, which are the easiest types of expenses to budget for since these remain the same from month to month.
Reducing Variable Expenses
Trimming variable expenses is more difficult than cutting discretionary spending. Deciding not to buy a more expensive pair of shoes, for example, is a one-time decision that is much easier to make than deciding how to cut your grocery bill — and then sticking to those cuts from month to month.
This is where financial software that helps you manage your budget can help you out. By setting your budget goals and then tracking your variable expenses, you can see where and for what reasons your variable expenses increase.
Variable Expenses for Businesses
In a small business, a variable cost is an expense that changes according to production or, in some businesses, with changing weather conditions. Typical small business variable expenses are costs for raw materials, such as office supplies or water that is used in production. If a small business were to cease production, variable costs would be nonexistent.