How to Plan for Variable Expenses - What are variable expenses?

You may feel like losing control of your finances if expenses are going out of hand, or are something that you feel is behind your control.

There are two types of expenses basically: fixed expenses and variable expenses. Fixed costs or expenses are those that remain the same over time, while variable expenses vary over time. These are not fixed, and therefore can be hard to budget for. These are not predictable, but there is one advantage in them. They do allow for a certain amount of flexibility in your budget that can be invaluable.

In this article, we shall show you how you can plan for variable expenses.

What are variable expenses?
Variable expenses, or variable costs, are those which change over time. These include grocery costs, movie tickets, and the like. Since these costs fluctuate within weeks, months or over years, it can be hard to budget for them or to save up for them.

However, you should remember that some variable costs are vital while others are optional. For instance, groceries are vital while gym membership can be optional and you can workout at home!

Another reason behind the variable expenses is due to a fluctuation in price. For instance, you may suddenly see that your transport costs have risen over just a few days, or even on the very next day! Even a rise of a few rupees can have an impact on some budgets.

Or for instance, let’s say that you like to treat yourself each day after work to Rs. 20 burgers. However, suddenly you see that the price has increased to Rs. 50/burger. In such a case, you may choose to discontinue treating yourself like this, or you may choose to cut down on some other expenses to continue treating yourself like this.

Then again, there are some variable costs or expenses which fit both scenarios. Costs of gasoline and utilities like water and power depends on how much you consume. Want more examples? How about vacation costs, clothing, holiday gifts, eating, and etc.?

Like all expenses, you not only need to keep a track of these, but also need to find out how these variable expenses are affecting your personal finance overall. Here is what you can do:

• Track your month expenses
• Deduct this from your monthly income
  

You’ll most likely get a positive balance. Rarely, and we hope not, will you get a zero balance or a negative balance.

Deduct your variable expenses from your fixed expenses. This shall give you an estimate of how much you’ll have to spend on the former. You can then decide and determine the amount which aligns with your budget.

Find how you can save
The easiest way to find out how much you can and should save, use the 50/30/20 budget. According to this budget strategy, you set aside 50% of your monthly income for your needs, 30% for your wants, and 20% for your savings.

As you can see, this budget gets all elements of your personal finance covered. It’ll be even better if you can automate these tasks. Oh and by the way, the 20% includes contributing to your emergency fund and retirement fund too. In the 30% set aside for wants, this is the place for variable expenses.

Wants are something you can do without if you choose to, and therefore you can save quite a bit here. You can’t control price changes of groceries and of gas, but you can control how to manage how much goes into them and how.

Revisit your spending
It is hard to anticipate for and pay for variable expenses. However, by examining your transaction history, you can get to learn your spending patterns. You can know about the general cost as well, which allows you to adjust your budget when needed.

Stop Worrying About Variable Expenses - 5 Tips for Managing your Variable Expenses

Even if your budget is an informal one, it is best to have one. Your budget does not have to be set in stone. In fact, the more flexible it is, the better it can be. After all, what good are these if you have to start all over again just for making the smallest structural changes?

When it comes to costs, there are two kinds of costs: fixed costs and variable costs. Fixed costs are those which remain the same each and every month. It includes things like membership packages, utility bills, service payments, investments and others. These are comparatively easier to handle because you know you’ll need to pay these at the end of each month, and can budget for them.

Variable expenses are harder to tackle because these differ from month to month. For instance, one month your expenses are manageable, but the next month it gets harder because you give away an expensive wedding gift. You can’t really plan for variable expenses, but saving up for them helps.

In this article, we are going to give you 5 tips for managing your variable expenses.

• Get the most enjoyment from your money: You have to pay your rent each month. That’s a fixed expense and there’s nothing you can do about that. But how about going to Starbucks each morning before work? Now, if it makes you feel good do continue. After all, we earn money to feel good, right? However, there can be other things which are more out of habit than for pleasure.
  
  
• For instance, if you have a habit of eating unhealthy burgers at lunch, that sacrifices health and money. Instead, why not bring healthy food from home? Likewise, evaluate everything you are spending on. This’ll help in reducing variable expenses.
  
  
• Pause before you buy: We tend to buy on a whim more than you think. For instance, we see a cool ad of the latest computer, and even when you have a laptop already, you rush to buy the new model. Instead of doing that, what if you take a deliberate pause. Seriously, take a pause and think about your decision. Is it rational? Is the thing you want to buy really important? Is it a want or a need? Can you do without it? How can you save money on the purchase?
  
  
• Plan for your seasonal expenses: There are certain seasons when you spend more, like Christmas and other festival months. Well, you do know you’ll be spending more on these months, but how much more, that you do not know. The best thing you can do at times like these is to keep aside a fund planned exactly for these times. For instance, make a yearly fund for splurging on Christmas so you won’t have to struggle to get funds later on.
  
  
• Make spending leaner: You want to spend on certain things, for instance a watch. But do you really need that cool looking smart-watch? Probably not! That’s one way to look at things. Here’s another way of seeing things: Let’s say that you are looking for a watch but love that smart watch at the store. Before you buy, you take a step back to think and say “It’s nice, but not worth the price.” Let’s say that your daily salary is Rs 1000 and you spend Rs. 2000 on a shopping splurge. That’s 2 day’s worth of salary. See purchases from these perspectives, and you’ll be less likely to spend wildly.
  
  
• Track expenses: 2 out of 10 people track their expenses. Make sure you are not part of the majority on this one! One way to curb excess spending is to track your expenses. Over time, we tend to lose track of how much we are spending, and how frequently. Maybe you are buying things you don’t need, or lose value really fast. You don’t need any fancy apps. Just write down your variable expenses down in a notebook for a few months.