ARTICLE: Make Sure Variable Expenses Don’t Derail Your Budget With These 4 Tips
As you observed in the infographic, variable expenses make up a large portion of our spending. But it can be tricky to budget for variable expenses since they change from month to month. Read this article to learn some strategies. Then, answer the questions.
4 Ways to Budget for Variable Expenses
Budgeting for variable expenses is an inexact science, but there are ways to make it easier.
1. Use the Average of Your Expenses
Prepare for fluctuating costs by calculating what you spend on average in a given budget category and use that as a baseline in your budget.
To find your average spend, add up everything you spent on say, groceries, over the past year and divide by 12. You could also use the average of three or four months, but it won’t be as comprehensive.
There will be months when you spend more and months when you spend less. That’s why it’s important to set money aside to account for those fluctuations. Money experts refer to this practice as setting up a sinking fund.
During the months when you spend less than average, you’ll divert the extra money into your sinking fund. Then when a higher bill comes along — like my electric in the height of summer in Florida — you can pull from those savings to make up the difference.
2. Treat Variable Expenses Like Fixed Expenses
You have no control over whether gas prices will jump up or if your babysitter will suddenly want a buck more per hour. But you can do your best to stick to consistent spending limits for your variable expenses whenever possible.
Use the cash envelope system to adhere to the spending limits you set for your variable expenses. For example, you might stick $100 in an envelope for dining out. Once you’ve used all the cash in the envelope, no more spending on restaurants until it’s time to refill the envelope.
Pro Tip
Ask your utility companies if they offer a plan where you pay a flat amount each month based on average usage. Then you aren’t surprised with a major increase (or decrease) from month to month.
3. Inflate Estimated Costs for Your Variable Expenses
Another way to deal with fluctuating monthly expenses is to give yourself a spending cushion by budgeting for more than you think you’ll spend. For example, if you regularly spend between $250 to $300 a month on groceries, budget $325 or $350. That should be enough money to buy food for the month without breaking your budget (and without having to do any math).
This approach only works if you have enough wiggle room in your budget. If you’re living paycheck to paycheck or you have zero emergency savings, you’re better off sticking to a budget that’s more strict.
If you inflate your projected costs, it’s likely you’ll have some money left over at the end of the month. You could put that cash toward savings, paying off debt or maybe just pocket it for something fun — totally up to you.
4. Do Your Best to Plan in Advance
Of course, you don’t have a crystal ball to predict what your variable expenses will be to the last cent. But you can try to anticipate expenses in advance. Don’t let yourself be surprised by what you could have planned for.
When you sit down to create your budget for the month, take a moment to think about the things you’ll do during the next few weeks. Is there a movie coming out that you’ve been dying to see? Add the cost of movie tickets, popcorn and drinks to your entertainment budget. Is a friend’s birthday coming up? Budget some money to go out and celebrate.
Get as detailed as you can so your budget will be as accurate as possible.
Don’t Let Variable Expenses Throw You Off Budget
The unpredictable factor of variable expenses may drive you crazy, but there’s one good thing about those costs not being set in stone: You can usually find ways to lower them.
Use coupons when shopping and check rebate sites after you’ve made your purchases. Adjust the temperature on your thermostat and water heater to reduce your utility costs. Make your own cleaning supplies. Organize a potluck dinner during the next holiday, instead of cooking (and buying) everything yourself. The saving possibilities are wide.
Nicole Dow is a senior writer at The Penny Hoarder. Buying generic brands is one thing she does to lower the cost of her variable expenses.
