Fixed vs Variable Budget Expenses

We talk a lot about budgets here at YoungMoneyFinance, and, well…that’s because they are very important. A budget helps you keep an eye on the big picture as well as the nitty-gritty. Everybody should have a budget, whether you make minimum wage or whether you’re a millionaire. A budget is only as helpful as you make it, though, and without insight and effort, it’s just number on a page. How does one go about improving their budget? An important concept to help you focus your efforts on your budget is the idea of fixed vs. variable expenses.budget

If you take a look at your budget, you’ll realize that there are certain things that you can and can’t control. Your rent stays the same each month, as does your car insurance. On the other hand, you can control how often you go out to dinner, and how many Starbucks lattes you buy each week. As a money-conscious young professional (who’s been reading my blog!), you’ll realize that it’s best to focus your energy on the things that you actually have control over. No sense fretting over your rent and complaining to your auto insurance company. To get your finances in order, you should focus your time and energy to change your spending habits on things that you can actually control.

These expenses that you can’t control are called fixed expenses. Each month you incur them, and they stay the same each month. Common examples of fixed expenses are rent, cable/internet, mobile phone bill, and auto insurance. These often are things necessary to sustain you; without them (aside from cable/internet), it’d be tough to get by. Taking control of your finances involves a great deal of an attitude adjustment – how you look at your money. You need to learn to not fret about these fixed expenses and look at them for what they really are: necessary to your survival. This, however, doesn’t mean that you should never focus on these and forget about them. I’d recommend once every 6 months or a year sitting down and having a serious conversation with yourself about them. Do I really need to be paying this much in rent? Would I be okay getting a smaller place or getting a roommate? Am I paying too much for car insurance? Should I listen to the commercials that I hear all the time and give them a call to compare rates?

Variable expenses are the ones that you can control and on which you should focus more continuous efforts. The following are the variable expenses in my budget: groceries, general living expenses, fun (eating out, drinks, and activities), gas, travel and parking. These are all expenses that can change from month to month and are expenses over which I have direct control. I know my grand total for the month of how much I have left after paying my fixed expenses and putting money in savings, and as long as I keep that number positive (i.e., don’t spend more than I make), I can spend it however I want. Some months I might take a trip to see friends, and so I’d spend more on travel that month. I’d then try to cut back on eating out. Other months I might be hanging out at home and then could afford to go out more or go see a concert or two. Variable expenses can change month to month, and are something on which you need to keep a sharp eye.

Budgets work best when we play an active role in managing them, and that works best when we focus on the things that we can control. By cutting back in areas that we can control, we can afford to live a little in other areas. By spending our energy on things that we can change, we can set ourselves up for a better financial future.

Thanks for reading the article! Please consider sharing on Facebook and Twitter! Here are some other articles you might enjoy:

How to make a Budget!

The Grad School decision

Wait…I need to be thinking about retirement?

4 Responses

  1. Nice overview of what things matter in a budget. It gives me a better way of breaking down what I can control and what I can’t. I have a budget in my mind and an old one on a spreadsheet. I have to admit, I don’t keep up on it well or stick to it perfectly. I better get better at this soon as my wife is planning on leaving the workforce soon when our third child arrives. Yikes!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.