Fixed vs Variable Expenses

Darryl Bachmeier
Aug 22, 2020
Finance


Our lives are full of uncertainties in every aspect, but learning how to make the right decisions today may give us some control over our future. When it comes to money matters, it takes discipline to make it work for you. Investing and budgeting are just some of the financial skills you should develop to thrive better in life.

There are many ways we can achieve financial literacy. And it starts with a conscious decision to have friendlier ties with money. Gone are the days when working hard equates to better pay; we now have to work smart. That includes being conscious of where we will spend our money or rather invest it instead.

And with consumerism getting us to a pit of endless spending, we have to take a stand. We have to make money work for us, and not us working for money.

What is Financial Management?

Getting educated about financial management is one of the most beneficial things you can invest in yourself.

With our seemingly endless pursuit of getting more income streams, it becomes eventually burdensome for us to work for money. Our goal should be to make money work for us. That is, to make our lives more comfortable and afford us quality things and experiences.

But, we won’t be able to make our hard-earned cash work for us if we don’t know how to manage it. After all, it’s easy to spend than save.

Where Do We Spend Our Money On?

Financial management starts with understanding the different kinds of expenses that we encounter in our adult life. And it could vary depending on the situation you are in.

Are you in college?

Are you single and living alone?

Do you have a family? How many kids?

Aside from your living condition at the moment, another strong influencing factor in your expenses is your goals.

Are you aiming to buy a car next year?

Have you gotten yourself an insurance policy?

Have you committed to regular charity donations?

These things can also determine where the slices of your income pizza will go.

Types of Expenses

Basically, there are two types of expenses - fixed and variable.

In general, the former is all about those predictable and constant presences in our spending list. The latter represents other expenses that we decide on a more spontaneous basis.

Now, identifying these types in our own financial list can help us have better control of our spending. Later on, we’ll discover how we can analyze the impact of these expenses, and eventually arrive at ways on how to curb some of them.

Before we continue, it would help if you will have a pen, paper, and some colorful highlighters handy at this point. Now is the time to jot down every expense you normally incur. It can be within the last 6 months or a year. It doesn’t need to be ultra-specific like what we see in grocery tabs; labels will do.

We can identify which are fixed expenses by their inevitability on the list. These are usually paid consistently within short intervals like monthly or quarterly. These tend to be mainstays on our list for a long time or until they are fully paid off. Also, these include essential expenses that we wouldn’t be able to live without.

Examples are:

  • Mortgage payments (car, house)
  • Student loan payments
  • Insurance payments
  • Tax payments
  • Rent
  • Utility bills
  • Grocery staples

Now, the last two items on the list could be tricky to categorize. Some people may let go of some utility payments like a phone plan. In terms of grocery staples, some may opt for food stubs. However, both categories are considered to be essentials for an average American living in this generation. So, it is safer to assume that we need to pay for these things continuously to live a comfortable life, at least.

As for the variable expenses, these refer to the expenses that tend to make non-regular appearances in our budget list. Okay, it depends on how frequent you want them to be. Therefore, you have better control over these expenses on your list.

In most cases, the things under this category are discretionary expenses. Meaning, they don’t need to be recurring in your list. Again, the last two items in the fixed expenses list - the utility bills and grocery staples, may also fall in this category because it can vary from time to time.

Examples are:

  • Vacations
  • Eat outs, restaurant deliveries
  • Experiences
  • Gas (it could fall under the fixed expenses list, too, say you can have an average cost for this month since you use it daily like when you go to work)
  • Non-essential groceries
  • Convenience expenses (taxi, car rentals, laundry services, nanny services, etc.)

If you can make your list as comprehensive as possible, that would be the best scenario. This way, there will be better transparency in tracking down every spending decision. This eventually can lead you to valuable realizations about your spending habits and in what areas you can improve on.

How to Save on Fixed and Variable Expenses

After identifying your expenses and categorizing them based on each expense criteria, you can now apply these tips on how to curb down each type of expense.

Fixed Expenses

It is challenging to remove a chunk of these expenses but with financial planning and huge amounts of discipline, it is possible.

Let this motivate you: saving on your fixed expenses can give you more financial freedom and relieve you of financial burdens.

Saving on fixed expenses only requires a one-time decision. Unlike with variable expenses, you have to make continuous small decisions to curb down your spending. So, you will most likely feel deprived of life this way.

Since these are fixed expenses, you cannot just simply let go of them. But, you can easily remove some of it through financial planning.

You can get out of your mortgage payments faster if you’ll pay it off right away. You can move to a smaller home or in a state where rent is cheaper. There are also ways to drive down your tax costs, and you can look for cheaper insurance plans. Phone plans can also be flexible depending on your budget and need.

You can be concrete with your grocery essentials budget. And you can also drive down your utility payments by opting for energy-saving appliances or installing solar panels.

Variable Expenses

It is both easy and difficult to curb down your spending on variable expenses. But this is the area where you’ll be able to exercise a lot of discipline, which you can also apply in other areas of your life.

You can take a good look at the list of your variable expenses and check for items that you can easily forego or at least, reduce its frequency.

Vacations can be scheduled way before to save on airline costs. Or you can wait for seasonal sales and avoid traveling during peak season.

You can also work with your colleagues or friends to limit eat outs or food deliveries. Instead, you try learning to cook at home or organizing potlucks once in a while.

The rest should be optional. You can set a limit to it like having Starbucks only once a month. If you are getting nanny services frequently, consider having a relative come over in some days instead, or explore more flexible work opportunities so you’ll have more time to take care of your children.

Final Thoughts

Spending should not be a burdensome experience. It is actually where you should be getting the fulfillment of your hard work. With proper financial management, you can have more freedom in spending your money on things that will make you happy and contented.

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