What Are the Differences Between Variable Expenses & Fixed Expenses?
Have you ever decided that it was time to be smarter about your spending? Most people, whether through necessity or curiosity, create goals to be more money conscious. One of the first steps was probably to take a detailed look at your spending. This typically involves making a list of all your categories of spending and calculating how much you spend in each category. But the secret to creating a successful maybe dividing them into just two buckets: variable and fixed expenses.
Bills, mortgage, entertainment, food, clothes, video streaming subscriptions, and travel are popular expense categories. But how do you decide where to cut back to reduce your spending?
A much easier way to think about spending is with just two categories: variable expenses and fixed expenses. This simpler approach to spending can help you create a healthier budget.
Weekly is an app that uses these two categories of spending and helps you manage your money. Instead of focusing on what the money was used for, we focus on whether the type of spending it is: variable or fixed. Weekly uses slightly different language when referring to these expenses.
Instead of fixed expenses we call them committed expenses since you have already committed to spending that money and instead of variable expenses we call them day-to-day expenses because they can change based on the things you do or choose to buy week to week. Whether you call them day-to-day or variable, committed or fixed, they are the same thing.
To help you understand the differences between these two categories of spending and how they affect your budget, here is a guide to variable expenses and committed expenses.
Three Major Differences Between Variable Expenses & Fixed Expenses
There are three major differences between variable expenses and committed expenses. These differences are predictability, amounts, and autopay. Understanding these differences is the first step toward an achievable, healthy budget.
Can you predict the future? The answer is probably “no.” It’s hard to predict what is going to happen in the next few minutes, let alone next week or next month.
variable expenses are equally unpredictable. You don’t always know when you’ll need to spend money on your variable expenses. Take clothes shopping, for example. If you have an event to attend this weekend, you might decide you want to buy a new outfit. But you don’t buy a new outfit on a predictable schedule.
Fixed expenses, in contrast, are predictable and occur on a regular schedule. This schedule is usually monthly. There are some expenses, such as your gym membership, that you are fixed to paying every month.
Some of your expenses cost the same amount of money each time you pay them. Others are more variable.
variable expenses have inconsistent costs. What you spend on something one time may not be the same the next time. Travel is a good example. How much you spend depends on how far you’re traveling, how you’ll get there, and where you’re staying. A few nights in a friend’s cabin will cost much less than a vacation to a tropical resort.
The costs of your fixed expenses are much more consistent. Even if they aren’t exact, you can usually create very close estimations for budgeting. Your electric bill might vary a little bit depending on how many appliances you use each month, but the amount is relatively consistent.
Automation is a great feature of modern society. One day, we might even all have cars that drive themselves. But for now, we can appreciate auto-pay, a feature where scheduled payments are automatically deducted from your account.
variable expenses don’t have this feature. They are point-of-sale transactions that take place at registers in stores or through online ordering systems.
Fixed expenses, however, frequently allow for auto-pay and automatically deduct the payment amount from your enrolled checking account or credit card.
Typical Variable Expenses & Fixed Expenses
It’s even easier to make sense of variable expenses and fixed expenses when you have an idea of the types of expenses that fall into each category. Once you understand these expenses, you’re on your way to understanding and improving your budget.
Examples of Variable Expenses
Remember, variable expenses take place at unpredictable times, have variable costs, and don’t allow for the feature of auto-pay.
Examples of variable expenses include:
- Eating Out
- Personal Care
- Medical Bills
- Home Repairs
- Car Repairs
Examples of Fixed Expenses
Fixed expenses occur at predictably scheduled times (usually monthly), have fixed costs, and usually allow for automatic payments.
Examples of fixed expenses include:
- Car payments
- Tuition fees
- Childcare fees
- Other loan payments including student loans
- Subscriptions and memberships
Now that you understand the differences between variable expenses and fixed expenses, let’s look at how this can help you with your budgeting. We promise, with these two budget categories, saving money is easy and achievable.
Recurring Income and Expenses
The first step to creating a spending budget is to figure out how much money you make every month. Calculate your guaranteed income by adding up all reliable sources of income. Write this total down.
Next, subtract all of your fixed expenses. Remember, these are your predictable and consistent payments like your mortgage, bills, utilities, and subscriptions. If you want to save a set amount of money each month, you should also consider this a fixed expense.
When you have subtracted your monthly fixed expenses from your monthly guaranteed income, the amount remaining is considered your safe-to-spend amount. This is the amount of money you can safely spend without losing money.
Safe-to-Spend Weekly Amount
Weekly takes your safe-to-spend amount and calculates it as a weekly safe-to-spend. This way, you know exactly how much money you can spend each week and stay within your budget.
You are free to use your weekly safe-to-spend however you’d like to. This money will go toward your variable expenses (what we call day-to-day expenses) but you don’t have to budget by category. If you buy a new video game you might have less money leftover to spend eating out at restaurants, but the choice is completely yours.
Weekly Makes Budgeting Easy
Making smart spending choices is achievable for anyone. With an understanding of variable expenses and fixed expenses, you are on your way to simple budgeting. Weekly makes it even easier!