November 4, 2021
  • November 4, 2021

What is the difference? – Councilor Forbes

By on July 2, 2021 0

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When developing a budget, it is important to know how to separate fixed expenses from variable expenses.

What is a fixed expense? Simply put, it’s the one that usually doesn’t change from month to month. And, if you are wondering what a variable expense is an expense that can be higher or lower from month to month.

Knowing how to include both in a budget is important to avoid overspending. It can also help you determine how much of your income to spend on debt, savings, and other financial goals.

Definition of fixed expenses

A fixed expense simply means an expense within your budget that you can expect to stay the same, or close to, over time. When you sit down to set your monthly budget, you don’t have to guess how much you’ll pay for fixed expenses. You can simply carry forward these amounts from last month’s budget.

Having one or more fixed expenses in your budget is a good thing from a planning standpoint. As these expenses are more or less constant, budgeting becomes more predictable. This can make it easier to use some budgeting methods, such as zero-based budgeting or 50/20/30 budget.

Besides being roughly the same amount each month, fixed expenses can also be paid on the same date or roughly each month. Again, the benefit here is that planning your budget can be easier to do with recurring bill payments. If you’re budgeting by paycheck or schedule automatic bill payments, having bills due around the same time can help you avoid late payments and the associated fees.

Examples of fixed expenses

Fixed expenses can include essential expenses, such as those needed to maintain a basic standard of living each month. Some of the more common examples of fixed expenses include:

  • Rent or mortgage payments
  • Tenant insurance or home insurance
  • Mobile phone service
  • internet service
  • Health, disability or life insurance premiums
  • Property taxes
  • Care expenses
  • Student loan or car loan payments

Water, gas and electricity bills are technically part of basic expenses. But these costs can fluctuate from month to month, depending on your usage and the rates charged by your provider.

While not necessary for basic needs, some recurring subscriptions can also be included as a fixed expense in your budget. If you pay for a gym membership or streaming services, for example, those costs may stay the same from month to month.

Saving can also be considered a fixed expense if you budget for it regularly. For example, you can put $ 100 in your emergency fund each payday. If you do this consistently and include it as an item in your budget, you can technically consider it a fixed expense if you don’t deviate from your saving habit.

Other less common fixed expenses may include child support payments, alimony, tax arrears you make through an installment plan, or payments made to satisfy a judgment of a family member. trial. These types of payments can be the same every month for the entire period you are obligated to pay them.

Definition of variable expenses

Variable expenses are the opposite of fixed expenses. A variable expense can recur from month to month. But the amount you pay in any given month may be different from previous payments or what you will make in the future.

Budgeting for variable expenses can be more difficult because you may not be able to determine exactly how much they will total from month to month. If you don’t regularly track variable expenses, it can be very easy to underestimate or overestimate how much of your budget you should be allocating to them. It’s something you can easily do with a budgeting app, however, which can minimize the chances that variable expenses will overshadow your spending plan.

Variable expenses can include essential expenses as well as discretionary expenses. For example, if you get sick, a visit to the doctor may be a necessity that you need to cover. On the flip side, discretionary spending means anything you budget money for or spend money on that you don’t necessarily need. In other words, these represent the “wants” of your budget.

Examples of variable expenses

What is included in a variable expense budget will vary from person to person. But some of the more common variable expenses that you can pay include:

  • Gas
  • Parking fees
  • Races
  • Dining out
  • Clothing
  • Personal care expenses
  • Medical bills
  • Home maintenance and repairs
  • Entertainment
  • Leisure and recreation

Some variable expenses may not be recurring. For example, you can take vacations or trips two to three times a year. The amount you spend each time may vary, but you don’t pay these expenses monthly. Instead, you can budget for these types of variable expenses using sinking funds – that is, money that you set aside for this purpose.

Tips for saving money on fixed and variable expenses

If you could use a little more wiggle room in your budget, finding ways to save each month can help. The way you plan to save money can vary, depending on whether you are trying to reduce your fixed or variable expenses.

Some fixed expenses may be easier to reduce than others. For example, saving money on tenant insurance, home insurance, or auto insurance can be as easy as looking for a better deal with another insurer. In contrast, saving money on housing may require you to move or refinance your mortgage.

With debt repayment, you may be able to save money by refinancing or consolidating your bills. For example, taking advantage of an introductory 0% balance transfer offer could help you save money on credit card interest. This assumes, of course, that you are able to pay off the balance in full before the promotional rate ends. You can also consider refinancing student loans or consolidating debt with a low interest personal loan to save money.

If you want to save money on variable expenses, it may require some lifestyle adjustments. For example, cutting back or eliminating things like dinners or new clothes are easy ways to save money. You can also save on groceries by planning your meals, taking advantage of coupons, or switching from well-known brands to generics.

The advantage of having variable expenses in your budget is that you have more control over them than with fixed expenses. It is therefore generally easier to find opportunities to save money.

How to budget for fixed and variable expenses

Forgetting to plan both fixed and variable expenses in your budget, or not budgeting the right amounts for either, can be a costly budget mistake. If you have both types of expenses to pay each month, these tips can help you budget accordingly:

  • Budget for the most part first. Most of the time, your fixed expenses are also the most important: shelter, insurance, childcare costs. So it makes sense that when you divide your income for the month, you make sure that those bills take priority over discretionary spending.
  • Track variable expenses. If you don’t keep an eye on how much you spend on variable expenses, you could be setting yourself up for budget failure. Tracking your variable expenses can help you see how certain categories of expenses in your budget are changing over time, making it easier for you to decide how much money should be allocated to them.
  • Know your baseline. Having a basic budget can come in handy if you lose your job or work in the gig economy. This is the bare minimum that you would need to spend each month to get by. Keeping this amount in mind can help you decide how much of your budget you can afford to spend on discretionary variable expenses.

Final result

It is important not only that you have a budget, but also that you make an effort to live within your budget. This means you go beyond just planning your budget and commit to sticking to your spending rules. Living on your budget can mean rethinking wants versus needs to avoid overspending. But the benefit of doing so is that you end up with a balanced budget without the risk of going into debt with high interest rates.

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