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

Millennial multiracial married couple siting together on couch, at table, calculating monthly family budget, shopping expenses, utility bills, using computer online banking app, submitting metrics.
fizkes / Getty Images/iStockphoto

Budgeting, quite simply, is the act of spending your money efficiently. The importance of budgeting cannot be overemphasized, whether you’re a company or an individual.

Working as a financial planner in Michigan, Julie Quick says, “Many people think this process is for those who can’t save. I would argue it’s for people who want to live intentionally.”

Therefore, if you want to make sure you have enough money for necessities and unplanned expenses, you must create a budget. And for that, learning the difference between fixed expenses and variable expenses is imperative.

Below, we’ve created fixed expenses vs. variable expenses comparison to help make things more straightforward for you.

fixed vs variable expenses

What Are Fixed Expenses?

Fixed expenses are expenses that are constant in your monthly budget. Since these expenses are predictable, you know how much you will be expected to pay. These expenses might fluctuate, but they stay pretty close to the same cost most of the time.

For instance, your apartment’s rent is a fixed expense. You pay the same amount every month. Yes, your landlord might increase after a year, but that’s not a frequent change.

Make Your Money Work for You

In most cases, you have to pay fixed expenses at regular intervals in identical amounts. The most common intervals are months. For example, you may be paying $2,000 every month.

Some fixed expenses are also paid annually, bi-annually or quarterly.

When budgeting, you must keep this interval in mind to ensure that you’re correctly making the monthly expenditure. For example, if you pay biannually on your car insurance, you must divide by six to calculate the per month cost for your insurance.

What Are The Most Common Fixed Expenses?

Here are some examples of fixed expenses:

  • Rent payments
  • Mortgages
  • Loan payments
  • Property taxes
  • Insurance premiums
  • Childcare costs
  • College or school tuition fees
  • Gym memberships
  • Internet subscription fees
  • Phone and utility bills

While it’s true that the amount you need to pay for a utility bill changes every month, it’s still considered a fixed expense since you get your bill on the same day every month and tends to remain fairly constant.

Budgeting with Fixed Expenses

When creating a budget, you don’t have to go all out. Most people imagine a budget to be a complicated spreadsheet with multiple fields and formulae. However, the trick to getting your budget right is to keep it simple.

Tonya Rapley, a millennial money expert, recommends you keep your budget simple by writing down all your fixed expenses, such as quarterly, annual or monthly charges.

This will give you a clear picture of how much you can save and what you’re spending. Plus, it will allow you to see areas on paper where you can cut back.

Additionally, you can trim down some of your fixed expenses to create more room for savings. For example, you can save money on your insurance plan by looking for an insurer with better deals.

What Are Variable Expenses?

As is evident from the name, variable expenses change regularly and can be affected by your day-to-day choices. Variable costs are less predictable than their fixed counterparts.

Since it’s comparatively difficult to measure or calculate variable expenses beforehand, most people struggle with this part of budgeting. Fortunately, there are apps and templates are available online to simplify this.

Make Your Money Work for You

Another thing to note about variable expenses is that you often have a high degree of control over them. For instance, if you’re buying clothes, you can choose to go to a thrift shop rather than a designer boutique.

However, not all variable expenses are in your control. For example, if you have a medical emergency, you have no choice but to head to the hospital and pay your medical bills.

Types of Variable Expenses

Here are some examples of variable expenses:

  • Entertainment
  • Gasoline
  • Medical copays
  • Clothing
  • Eating out
  • Groceries
  • Personal care
  • Car repairs
  • Home maintenance and repairs

How To Budget for Your Variable Expenses

Since variable expenses keep changing, you might find it hard to manage them. However, once you create a clear line between what is essential and what isn’t, budgeting will be easier for you.

For instance, some supermarket purchases you pick up on your grocery runs are considered “a waste” by experts. Try saving money on your groceries since they form the most significant part of your variable expenses.

Similarly, when you’re on a tight budget, you need to categorize things as “needs” and “wants.”

Does your room really need a fresh coat of paint, or are you just tempted to do it because you binged some room makeover video on YouTube the night before? To cut down on your variable expenses, you may have to make some lifestyle changes.

For example, if you’re currently eating out five times a month, you might want to reduce it to three times to lower your variable costs.

Know your financial habits and try to cut down on unnecessary costs.

How to Budget Like a Pro

Colleen McCreary, a financial advocate at Credit Karma, has the perfect tip for budgeting like a pro. You should divide your expenses into three categories – needs, wants and savings. 50% goes to necessities, 30% to wants and 20% to the savings category, also known as the 50/30/20 budgeting method. She says, “You can always change the percentages based on your lifestyle. Your budget has to work for you.”

Thus, you can start with this division, but you can change the percentage according to your circumstances if you need to save more money or have more needs.

The bottom line is to give all three categories a certain percentage and stick to it.

Make sure you’re budgeting for the essentials first. After that, track your variable expenditures and give them a certain percentage. Finally, put the rest into savings.

Good To Know

Keep in mind that budgeting is only the first step. Sticking to your budget is often more difficult than creating a budget since it requires making lifestyle adjustments and having a certain degree of self-control. It may help you stick to your plan if you remember the benefits of good money management: you could be debt-free — and with considerable savings — sooner than you think.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Scott Jeffries is a seasoned technology professional based in Florida. He writes on the topics of business, technology, digital marketing and personal finance. After earning his bachelor’s in Management Information Systems with a minor in Business, Scott spent 15 years working in technology. He's helped startups to Fortune 100 companies bring software products to life. When he's not writing or building software, Scott can be found reading or spending time outside with his kids.

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