Fixed vs. variable expenses: What’s the difference?

What’s a fixed expense?

Fixed expenses are regular costs that are set in stone. They remain the same every month, or a similarly fixed timeframe. Many of these are considered necessities, and usually you’ll pay for them around the same time each month.

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Some common fixed expenses include:

• Rent
• Mortgage and home payments
• Car or student loans
• Quarterly taxes
• Internet, phone and cable services
• Car, homeowners, life insurance

You usually sign a contract for these expenses, and they’ll reflect how much you will pay per month. If these rates change, you’ll typically be notified by these companies. If your rent is going up, for example, you can review your contract and plan for how it will affect your budget.

What is a variable expense?

A variable expense is a cost that can be higher or lower each month. It includes basic necessities and recurring fees, but what you buy, how much you use, or the level of service you choose can vary in cost. It can also include emergency costs such as needed home or car maintenance, as well as medical costs.

Examples of variable expenses include:

• Groceries and personal care
• Clothes
• Travel and vacation
• Credit card bills (without a payment plan)
• Entertainment (events, dining out, etc.)
• Healthcare
• Home repairs
• Gas, water, and electricity bills

Utility bills are oftentimes considered a variable expense: how much you pay can vary depending on how much you use. Running the air conditioning will increase your electricity bill during the summer months, for example.

Fixed vs. variable expenses: How do they impact your budget?

While fixed expenses are the same each month, variable expenses can change on a regular basis. Both types of expenses can affect your budget differently based on usage, demand, or time of year.

A well-balanced household budget uses fixed expenses as a foundation for monthly spending. Not only is it easier to set a budget with costs that you know won’t change from month to month, but they’re usually necessary. Paycheck deductions and automatic bill payments are part of many fixed expenses, which makes it easier to plan out your spending and can help you avoid late fees and fines.

On the other hand, variable expenses may require some predicting: you’ll likely spend more on gifts during the holiday season, for example, versus in the summertime. Be sure to consider these timely fluctuations when budgeting and check how much you typically spend on variable expenses, so you can estimate how much to set aside.

It’s much easier to cut back on variable expenses as opposed to fixed expenses. These expenses are usually tied to your lifestyle: if you find yourself spending too much on going out to dinner, then some quality home cooking will be a good way to fit your budget. Buying less expensive personal care products (i.e., store-brand versus name brand) can go a long way to getting more for your money. And when your budget can allow for it, you can always look forward to a little bit of financial indulgence!

You can easily cut back on fixed expenses, too. Monthly subscription services are considered fixed expenses, as their rates usually remain the same and are charged on a regular schedule. Consider eliminating a television streaming service if you find yourself needing to cut back. While you’re going to need insurance, credit cards, and bank loans, it pays to shop around for better rates. Renegotiating a mortgage, paying off a loan early, or redirecting some income to an emergency savings fund are also ways to manage your fixed expenses. Paying off credit cards and consolidating debt can alleviate a major aspect of your spending.

Knowing how to manage fixed and variable expenses alike will make an impact on your monthly budget—especially if you’re following the 50/15/5 savings rule to avoid overspending. By taking care of the recurring expenses that you need in this modern world, you can then help prioritize what’s important in your life.