Understanding Fixed and Variable Expenses so you can Save Money

Whether you’re well off or struggling to get by, creating and maintaining a budget is one of the most important things you can do to manage your money well.  Sticking to a well-planned budget can even help you save money for the future.

Before creating a budget, you’ll need to make a list of all your expenses.  There are two basic types of expenses: fixed and variable.  Separating your expenses into these two categories will help you to come up with a workable budget.

Fixed expenses are bills or fees that you pay on a regular basis (once a week, once a month, etc.) that are always the same amount.  For example, your mortgage or rent is a fixed expense.  Every month, you’re expected to pay the same amount by the same date.  Look at all of your expenses and determine which of them fall into the “fixed expenses” category.

Some expenses that are typically fixed include car payments, monthly bank fees, auto insurance, home or renter’s insurance, life insurance, television and Internet provider service, and any gym or club memberships you may have.  Health insurance can also be a fixed expense, if you pay it yourself and it’s not already taken out of your paycheck.

Typically, your landline phone bill and/or cell phone bill will also be a fixed expense.  The amount of the bills may vary slightly per month (depending on factors such as long distance calls, number of text messages sent and received, and amount of data used) but they should be relatively similar.  If your phone bill varies wildly every month, count it as a variable expense rather than a fixed expense (and you may want to contact your provider to see if there is a better plan for you).

Unlike fixed expenses, variable expenses do not have a set amount or a set due date.  They may have one or the other – for example, your electric bill is always due at the same time every month but it’s not always the same amount – but not both.  Variable expenses generally include things like food, clothing, entertainment, and your utility bill.  (If your utility bill is fairly similar from month to month, especially if you’re on a budgeted plan where high-cost bills are spread throughout the year, count it as a fixed expense rather than a variable one.)

Now that you have a list of fixed expenses and a list of variable expenses, you can start to create a budget that works for you.  Seeing your expenses written down can help you to cut some of them out and spend the money you have more wisely.