What Are Variable Expenses and How Can I Calculate Them?
Variable expenses are costs that can change over time, such as travel or food. Budgeting for variable expenses can feel tricky. Here’s what you need to know.
February 17, 2022
When it comes to creating a budget, there are two broad types of expenses: Fixed expenses, like rent or mortgage payments, and variable expenses, like food and travel.
What are variable expenses, exactly? Essentially, these expenses are costs or spending categories that change over time.
Precisely because they change, it can be difficult to budget for variable expenses. How do you prepare for an expense category that’s different month-to-month?
This guide shows you how to calculate variable expenses in your budget and covers everything there is to know about these frequently changing expense categories.
What are variable expenses?
Variable expenses are expenses that change over time.
A variable expense could be an expense that changes month-to-month, like your heating bill. Or, a day-to-day expense, like your lunch purchase at work.
The variable expenses definition includes any expense category that may change frequently.
Other expenses may change once every year or two (like rent), but these would still be considered fixed expenses since they’re the same every month.
Importantly, variable expenses can be essential, like utility bills — or completely optional, like restaurant takeout.
Variable expenses examples
Any expense that varies from month to month could be considered a variable expense. Some common examples include:
Variable does not necessarily mean discretionary
There is another type of expense category that’s referred to as “discretionary expenses.” These are “optional” purchases, such as entertainment and restaurants.
Variable expenses can be discretionary — but they can also be necessary.
For instance, your heating bill is a variable expense (it’s likely higher in the winter than the summer), but it wouldn’t be considered discretionary.
On the other hand, travel is a variable expense — but in many cases, travel is discretionary.
How to budget for variable expenses
There are a couple of different types of variable expenses, and the strategies for budgeting for them differ a bit.
Required variable expenses
Expenses like groceries, utility bills and gas are required, but the amount you spend on them changes every month.
To prepare for these expenses, a smart strategy is to find your average spending per month in these categories.
If you’re not actively budgeting, you may wish to start tracking your expenses for a few months. You can use a tool like Mint or YNAB to track your spending automatically, or take a simple pen-and-paper approach.
You can also look back at your bank or credit card statements and add up everything you’ve spent on that expense category, then calculate the average.
For instance, if you analyze your grocery spending and find that you spent $640 in January, $715 in February and $590 in March, you could add these three numbers together and divide by three. You’d get $648.33, and could safely assume your average grocery bill might be around $650 per month.
Optional variable expenses
Restaurant meals, charitable giving and travel are all examples of variable expenses that are generally completely optional.
It’s wise to budget for everything else first, then use any leftover money to budget for these optional categories.
For example, using this method you would first budget for your rent, debt repayments, utility bills, basic grocery bill, etc. before budgeting for or spending any money on optional purchases.
Periodic fixed expenses
Periodic expenses are a form of variable expense that are easier to budget for. These are fixed expenses that are consistently the same, but don’t occur every month.
For instance, the annual fee on your credit card or a gym subscription, which you pay for every quarter, might be considered periodic expenses.
These expenses are relatively easy to plan ahead for. If you know you have a $600 expense for car insurance every six months, setting aside $100 each month will ensure you’ve saved up for that bill.
For more tips and tricks, read our introduction to budgeting guide.
Why it’s important to plan ahead for variable expenses
If you don’t plan ahead, there are two potential issues with variable expenses:
You can easily end up spending more than you think you are.
Variable expenses can break your budget, causing you to use credit cards or other expensive types of debt.
Let’s examine these two potential issues more closely.
Spending more than you think
If you don’t track your spending or budget for variable expenses, it can be easy to overspend. Even small purchases — a fast food meal here, a quick Amazon order there — can quickly add up.
In fact, one survey found that Americans spend an average of $1,497 per month on unnecessary purchases like entertainment and dining out. That’s close to $18,000 per year!
While it’s relatively simple to calculate how much you’re spending on fixed costs like rent, variable costs can be trickier. Start tracking your spending habits for a few months to see where your money is actually going — you may be surprised!
Getting into debt
Variable expenses can quickly lead to more debt if you don’t budget for them. A surprise bill or a holiday season that’s more expensive than expected could easily break your budget and cause you to reach for a credit card.
While credit card debt is pretty common (51% of all credit card accounts carry a balance), that doesn’t mean it’s unavoidable. And, considering the average credit card APR is a whopping 14.51%, it’s wise to avoid credit card debt at all costs to improve your financial wellness.
If you already have high-interest debt, you can check out our blog post on how to pay off credit card debt.
You can also take a look at Tally†. Tally is an app offering a lower-interest line of credit that helps qualifying Americans pay off credit card debt faster. Learn how Tally works here.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.