What Is a Variable Cost, Exactly?

A variable expense is defined as a recurring cost that varies from month to month. Anything from groceries to entertainment can be included in this.

Main Points

Any expense with a changeable amount is a variable expense.

Among the varied costs are those for food, transportation, and entertainment.

Budgeting for variable expenses can be challenging because it’s impossible to predict exactly how much you’ll spend.

The Function of a Variable Expense

A variable cost is one that is changeable and not fixed. This might be something like utility prices, which fluctuate based on usage. Or it may be something like car gasoline, which varies depending on consumption and gas pricing. Anyhow, a variable expense is one whose cost isn’t predetermined in advance.

Budgeting is challenging when your spending are variable because you can never estimate exactly how much you’ll spend. But controlling your variable costs will go a long way in assisting you in achieving your financial objectives.

Variable expense examples

Let’s discuss food, a significant variable cost. Your lifestyle and diet will determine how much money you spend on food. Here are some instances of varying food-related costs:

  • Eating out could be getting fast food or going to a good restaurant for a great evening. It might add up quickly if you frequently eat out.
  • What you need to buy in order to prepare meals at home is groceries. Depending on where you buy and what you prefer to eat, the cost of food can change.
  • Coffee: Whether you purchase coffee daily or only on the weekends, the cost can quickly add up.

Making decisions that lower your food budget is one method to manage varying expenses related to food.

How to Plan Your Budget for Variable Costs

Learning how to budget your variable expenses is one of the most important steps in achieving financial stability. Variable expenses might arise at any time and can throw off our monthly spending goals because they are unpredictable.

Variable expenses can be challenging to budget for due to their fluctuation. The average cost of your variable expenses can be useful in this situation.

Say, for example, that in January you spent $400 on groceries, $500 in February, and $450 in March. That comes to $450 per month on average. Now that you have a number to work with, you can allocate $450 each month to cover groceries, despite the fact that this is a variable cost. Leave the money untouched if you spend less than usual one month so it will still be there if you overspend the following month.

The majority of budgeting programs figure out how much you typically spend in each of your spending categories each month. Therefore, you might not need to perform this work yourself if you already use a budgeting tool.

Zero-based budgeting, where you allocate every dollar of your income toward spending and savings, is another strategy for planning for unpredictable variable costs. You might also employ a pay-yourself-first method to budgeting, where you first spend money to fund your objectives and then work backward to determine how much money is left over to take care of costs. Or you might use the tried-and-true envelope technique of budgeting, which involves making separate envelopes for income and expenses.

Fixed versus variable expenses

Expenses come in two flavors: variable and fixed. What makes a difference, then?

  • Costs that vary based on how much you purchase, such as food or gas.
  • Regular monthly costs, such as rent or a car payment, are known as fixed expenses.

To effectively budget your money, you must know how much of your spending are variable and how much are fixed. Since fixed expenses don’t fluctuate as much as variable expenses do, they are always simpler to account for. By saving aside money each month to pay the cost, you may easily prepare for them.

Budgeting for variable expenses is more challenging since they are subject to unforeseen change. You must be careful with your money in order to stick to your spending limit.

Change from month-to-month Stay the same every month
Irregular and difficult to budget for Predictable and easier to budget for
Includes groceries and utility bills Includes rent, mortgage, and car payments

Businesses incur both variable and fixed costs, just as consumers.

Questions and Answers (FAQs)

What exactly are variable costs?

Costs known as variable expenses might vary from month to month. This might apply to expenses such as your electricity bill, which may increase over the summer when you use your air conditioner more, or your food bill, which may decrease if you dine in more often or stock up on discounted goods.

What sort of expense is variable?

You must pay for expenses that can change from month to month, which are known as variable expenses. Tolls, parking, and gas are a few examples. Other examples of variable costs in your budget are food, dining out, power or other usage-based bills, and home goods like toiletries and cleaning supplies.

An illustration of a fixed expense

Given that they remain constant month after month, fixed expenses are fairly predictable. This can involve paying for things like a car, a gym membership, a rent or mortgage, or subscription services. Other examples of constant expenses are childcare costs, insurance payments, cell phone (if you have an unlimited plan), and internet rates.

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