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How to Budget Variable Expenses

Updated: Feb 20



For the longest time that I can remember, I heard money talks, yet mine had just one word to say – goodbye. I have been what you could best describe as a spendthrift. Shopping spree and impulsive buying was something that excited me. But with time I learned the hard way that mindless spending can be dicey and punishing.


Even with wise budgeting, sometimes it is hard to be in control of your finances when many of the costs are largely unpredictable. While your mortgage and car payment expenses remain fixed, there are many more that change over time. The good news is the downside of such expenses can also be the upside.


Budget Variable Expenses With Ease


Due to their variable nature, these expenses also give you more flexibility in your budget.


Read on to learn more about variable expenses!


What Are Variable Expenses?


Variable expenses are the costs that can change or fluctuate over time. Such expenses vary depending on your usage of products and services as well as on other factors. For example, using your car more than usual in a particular month will result in the corresponding increase in your variable expenses for fuel and maintenance. Similarly, if you have guests for an extended time period, your variable expense of groceries can increase.


Due to the reason of their fluctuation over a week, month or even a year, it can be daunting to predict and manage such expenses. Some of these expenses might be unavoidable, like groceries, while others are options, like tickets to a concert.


Sometimes expenses might vary due to the fluctuation in prices. Other times, increases in expenses can be simply due to more uses. There are also some variable expenses that fit both conditions. For example, utility expenses like electricity or water bills can vary depending on how much you use as well as changing rates.


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Now that you know what variable expenses are, let’s dig into how to budget for variable expenses to keep your financial goals on track!


Determine the Average of Your Variable Expenses


One way to manage your variable expenses better is to prepare for them by calculating the average. In order to find the average of a particular variable expense, you will add up everything you spent on it (like fuel) over the past year and then divide it by 12 (the total number of months). You can also consider the average of four or six months to use it as a baseline in your budget.

One important thing to remember when planning for variable expenses is that these monthly expenses would not remain constant. Some months you will spend more and spend less on others. The best way to tackle this problem is to set up a sinking fund. This way you can set aside some money to account for these variations in the same expense.


Hence in a month if you spend less, you can save that extra amount in your sinking fund. Then when a high bill hits you with a surprise, you can pull out from the sinking fund to make up for it.


Add a Spending Cushion


Another great strategy to tackle variable expenses in your budget is to add a spending cushion by budgeting for more than the predictable cost of an expense. For example, you know that you spend between $50 to $75 on healthcare costs each month. So, you can budget $90 to $100 to cover any one-time increase in the expense. This should be enough amount to cover your usual healthcare costs without breaking your budget.


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It is also important to point out that this strategy works best if you have room to wiggle in your budget. If you are already running tight on your budget, sticking to the actual costs is a better idea. However, if you do manage to add a buffer to your variable expenses, you will likely save some money by the end of the month. You can divert those savings to your sinking fund or any other savings account, depending on your needs.


Needless to say, a 3-5% spending cushion should be enough to meet any fluctuations in your monthly expenses. If you want to go a step further and be more cautious, and more importantly, if your budget allows, you can even go for a 10% buffer.


Keep Track of Your Spending


If there is anything that is as important as wise budgeting, it is keeping a regular track of your expenditures, especially those that are variable in nature. Note down the expenses for which you are over budget or under budget.

There are budgeting tools and apps that can help you determine the dollar amount increases or decreases for each expense. This way you can tweak your budget to allot funds for an expense that is under budget by using the amount from the expense that is over budget.


Choose Technology and Practices That Decrease Variable Costs

Investing in tools and technology that can be more efficient in the use of energy is always a sound choice. Many electricity providers offer free assessments to help you determine how you can conserve energy in a better way. Always go for an HVAC system that is energy-efficient. Similarly, buy lights that turn off automatically after a certain time or if they don’t sense motion.


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Sometimes a bit of an upfront cost also helps you save in the long-run. For example, buying a smart thermostat will eventually reduce your bills by conserving energy.

Create a Savings Account for Variable Expenses

Lastly, if you have ended up with some savings at the end of the month due to budgeting wisely, you can divert that amount into a savings account exclusively for variable expenses. This will help you deal with price spikes throughout the year without breaking your budget. You can even deposit excess funds whenever you can to meet any unexpected expenses that would hit your budget as a surprise otherwise.


Final Word


Variable expenses, by their very nature, are difficult to predict and challenging to plan for. But that doesn’t mean there is no way to budget them effectively. With the help of these abovementioned tips, not only are you covered for the big one-off bills, but you can also tackle expenses that you don’t see coming even with a buffer.


If you are looking for some professional help to manage your finances better, you need to look no further. The Doctor Money App helps you plan for all kinds of expenses so that you can be financially stronger for all budgeting troubles that might come your way.


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