Fixed vs variable expenses

Understanding Fixed and Variable Expenses

As you set out to create a household budget, you will likely come across the terms FIXED and VARIABLE expenses.

When it comes to setting up a budget, sometimes all of these technical terms can become overwhelming. In fact, it might make creating a budget seem like a task too difficult to conquer.

So let’s start at the beginning…

What is an EXPENSE?

Expense: “money spent on something” (per Webster’s dictionary)

In other words, every item, bill, or activity we spend our hard-earned money on is an expense.

Fixed expenses vs variable expenses

And all these expenses can be categorized as either a FIXED expense or a VARIABLE expense.

Fixed Expenses

In your household budget, a FIXED expense is going to be all of your household’s non-negotiable expenses that occur regularly.

Most often these expenses occur each month but others may occur every year or every 6 months.

Examples of a fixed expense include rent or house payment, insurance, and most utilities.

Another way to think about a fixed expense is this… these are the expenses in our life that HAVE TO HAPPEN in order for us to live. 

Additionally, fixed expenses generally cost us the same (or near the same) amount each month.

**Some utilities such as water, gas, & electric are billed based on your usage so while they are considered fixed expenses (because they occur each month and are essential) they will have a different value each month.**

Variable Expenses

Variable expenses include the spending in our lives that (can) change in value from month to month and aren’t necessarily essential.

Examples of variable expenses include expenses such as memberships, entertainment, shopping, pampering, and dining out.

Most often these expenses are considered non-essential and therefore can be adjusted when trying to achieve financial goals.

Another way to look at it is simply this: these expenses would be the ones we would cut back on or completely cut out when we are needing to find additional funds.

The Impact of Fixed and Variable Expenses

Establishing a budget often comes on the heels of setting specific financial goals.

This means you create a budget because you want to achieve specific things. By having a budget you can guarantee that your money is being used in the most effective way possible.

Related: The Importance of Setting Financial Goals

Whatever these goals may be for your family, they often include finding more money to put towards either debt repayment or savings accounts.

When you are looking to find additional funds, it is crucial that you adjust your spending in the appropriate place to create the necessary funds.

Finding More Money

When you are looking to find more money to put towards your goals there are two options:

1. You can simply make more money. Perhaps you pick up a side gig or add more hours at work. In this instance, you will not have to cut back on spending BUT you will still have funds to put towards your goals.

2. You can decrease your spending. By decreasing your spending you will have additional funds at the end of the month to then put towards your financial goals.

If you decide to decrease your spending, I would recommend looking at your Variable Expenses to start.

This is not to say that decreasing your fixed expenses is not an option. Rather it should be noted that because the fixed expenses are usually our “need to survive” expenses it can be more difficult.

For example, if your family’s financial goals include making an extra payment towards outstanding debt each month, decreasing your spending in a variable expense is generally easiest.

It is easier to save money by not eating out than it is to lower your rent each month.

Adjusting Variable Expenses

If you decide you want to increase your remaining funds each month by decreasing your variable expenses I recommend taking a look at where you spend the most money each month.

In our home I was able to pinpoint that we spent more than I care to admit on take out and eating away from home.

When it came time to adjust our budget to meet our goals, I knew cutting down how much we were eating out was the answer.

Related: How to Make a Budget

Other areas where variable expenses can be adjusted include groceries. By implementing better meal planning options and shopping sales, you can decrease your monthly grocery bill.

Related: Weekly Meal Planning

Adjusting Fixed Expenses

Fixed expenses are often the expenses in our lives that are the most important. As mentioned above they usually include our home, utilities, and mode of transportation.

While adjusting your Variable Expenses is the easiest, it is possible to adjust your fixed expenses if necessary.

For some families, their financial goals are big (and that’s awesome) and end up requiring lifestyle changes that result in adjusting the fixed expenses.

This may include downsizing to a smaller home for a lower house payment or buying a used car to lower an auto payment.

Making Your Budget Work For You

At the end of the day, it is important to remember that a household budget should be tailored specifically to your family and your family’s goals.

Take time to look over your budget each month and continue to tweak it until it is working nicely for you.

This may include lowering or entirely cutting out expenses in order to make sure funds are available.

Or it might include re-allocating funds in order to achieve goals.

If you are looking for more tips and guidance on setting up a household budget, sign up below for my FREE 5 day Well Planned Budget Email Course.

In this course, I will walk you through each step and even give you some free tools to help along the way.

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Fixed vs Variable expenses

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