Why Your Variable Expenses Change and How They Impact Your Budget

 To manage finances well and budget rightly, you need to be aware of variable expenses. Since they change from month to month, these expenses are hard to plan for.

Now, you may handle finances for yourself or a company. So, it is always necessary to be able to identify these kinds of costs. That way, you can watch and manage shifting expenses for success.

Today, we will discuss what variable expenses are and how to add them to your budget. We’ll also give some variable expenses examples to help you better understand.

What Are Variable Expenses?

Variable expenses are those that depend on what you use or consume in any given month. These expenses can get higher or lower depending on several factors. They are not always easy to plan and budget.

The amount you pay for groceries could vary from month to month. It could be based on your spending and the times you go shopping. On the other hand, your electric costs may increase when it’s chilly and drop when the weather is warmer.

The primary feature of variable costs is that they are influenced by your choices. They respond to changing seasons and outside factors. This is what makes it important to consider when making a detailed financial plan.

Differences Between Variable vs. Fixed Expenses 

Knowing how variable and fixed expenses differ makes dealing with your finances much easier. Many regular bills are known as fixed expenses. They maintain the same amount. Some examples of costs are rent payments and mortgage fees. Costs of car loans, insurance payments, and subscriptions are other examples. It is simpler to include fixed expenses in your budget because you can estimate them ahead of time.

Then, there are expenses that can change from one period to another. This is because of your moves, habits, and the world around you. This type of spending is represented by your grocery expenses. Other variable expenses are meals outside of home, fun activities, and bills for utilities. You have no control over how much you spend in everyday life.

For businesses, these expenses may change. Items such as raw materials and inventory form the list. This is because they increase with the amount produced. When there are fewer business activities, less labor will be required for production. As company sales increase or decrease, sales commissions will follow the same trend.

When the number of sales is higher, the costs for shipping and delivery go up. Those costs can also depend on the rate and distance involved. The budget given to marketing and advertising changes when the market demands it. It can also depend on when certain strategies require it. For many businesses, transaction fees due to an increase in sales are a major variable cost.

There is one more kind of expense we should discuss: semi-variable expenses. There are variable and fixed expenses associated with these costs. As an example, each month your phone bill might charge a fixed fee. Then, there’ll be a change in the amount of any data or international calls you make. In most cases, your water bill consists of fixed maintenance charges. Then, it will also include fees for the amount you actually use.

If much of your spending is on variable items instead of fixed, your finances will be more flexible. With a high number of fixed expenses, it is difficult to adjust to financial issues. But if you have more variable expenses, cutting back is simpler.

Why Variable Expenses Change Throughout the Year

During different periods of the year, variable expenses may change a lot for several important reasons. Once you get familiar with these, adjusting your budget will be easier.

1. Seasonal Usage

The usage of energy at different times of the year is the most obvious explanation. Heating your home in winter can become very expensive. This is especially in areas where the temperatures are much lower. In warm climates, people use more electricity during summer because they need their air conditioners. When temperatures rise or fall, people often find that their utility bills are twice or three times higher. 

2. Holiday Spending

Spending on holidays is also a significant reason why expenses may change. Generally, the costs of buying presents, decorating, enjoying festivities, and traveling rise during year-end holidays. In November and December, the amount of discretionary spending for many households can be at least 30% higher. Summertime travels and joyful activities also lead to an increase in travel and entertainment spending.

3. Tax Season

Tax seasons may also affect these variable costs. Depending on the year, your monthly take-home pay may be affected by income tax withholdings. This will affect your ability to spend. At the beginning of the year, some people receive extra money from taxes. Others need to pay more, which is not always easy.

4. Seasonal Activities

Expenses that change from season to season highly impact variable costs. Outdoor activities can be costlier in summer, plus you may need to spend on your garden and yard. There may also be more social events. Winter sometimes results in paying more for indoor events. You may also have to pay for winter clothes and holidays. Such adjustments in our day-to-day activities also affect our spending habits.

How to Budget for Variable Expenses

A different method is necessary for budgeting for variable expenses compared to budgeting for fixed costs. Since these costs are hard to predict, you must form both organized and flexible strategies.

Envelope System

Using the envelope system is a well-known method to control your flexible expenses. With a budget, you divide your cash into various categories. These can include food, going out, and shopping for clothes. After spending the specified budget, you halt your spending. You do not continue spending money in that category until the following budget period. Because of the limitation, it becomes more difficult to go beyond your limits.

Spending History

Looking at your past expenses helps you make good decisions. This especially helps with budgeting things like entertainment, eating out, and so on. First, you’ll review the expenses for the last 6-12 months in each category. Then, you will be able to see which patterns occur and set better basic budgeting rules for yourself. Looking at your past finances explains why your lifestyle changes from month to month.

Sinking Funds

Having sinking funds is an effective approach for dealing with these expenses. These are those that are difficult to forecast but tend to happen at the same time every year. When you use a sinking fund, you put a little bit of money aside. Usually, it is to prepare for holiday gifts, insurance, or clothes when their prices go up. If you spread the expenses over the year, you are not faced with a big expense all at once.

Budget Reviews

It’s necessary to review your budget each month and update it to control your variable costs better. You should pay close attention to variable costs. This is unlike fixed costs. Get into the habit of comparing your actual expenses with your budget every month. This way, you can respond to any small issues right away.

Budget Cushions

This takes into account that there will always be some unexpected changes in variable expenses. It means allotting a bit more for some expenses than you need. This will help if the actual expenses rise. This way, you avoid feeling upset when you spend more than planned. You can also keep your finances stable despite changes in your daily expenses.

Final Thoughts

Because variable expenses are hard to predict, you must track them. This helps you set up a plan to address them and occasionally upgrade your strategy as needed. Planning and adjusting your expenses as necessary is important. This is based on understanding the nature of these costs. It allows you to keep your finances in order and deal with unexpected situations.

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