What Is a Variable Expense?
Variable expenses, also known as variable costs, are expenses that change depending on how much you use a product or service. Variable costs are corporate expenses that vary in direct proportion to the quantity of output. Unlike fixed costs, which remain constant regardless of output, variable costs are a direct function of production volume, rising whenever production expands and falling whenever it contracts. Examples of common variable costs include raw materials, packaging, and labor directly involved in a company's manufacturing process.
How can I protect my budget from these expenses?
Now that we understand how variable costs can confound budgeting, here are seven ways you can get out ahead of them and prevent you from struggling to make the numbers work each month.
1. STRIKE A DEAL TO PAY A FIXED AMOUNT FOR UTILITIES.
See if you can talk to your service provider about being charged a fixed amount for your utilities each month, rather than paying a variable rate. You may end up paying slightly more than you would have in the long run, but if your goal is to reduce uncertainty, this is the best way to do it.
2. INVEST IN TOOLS AND PRACTICES THAT LOWER HIGHLY VARIABLE COSTS
Most electricity providers offer free assessments to see how you can be more efficient in your energy use, but you can also take the time to make sure your HVAC system is running efficiently and that your lights turn off automatically after a certain hour or if they don’t sense motion.
3. TRACK YOUR EXPENSES
Part of the problem with variable expenses is tracking them accurately. You know how much the rent is, but you may not be aware of how much you’re really spending on food, toiletries, gas, travel, gifts and the many other expenses that crop up. You can use the simple, old-fashioned method of writing down your variable expenses in a notebook for a month or two, or you can go higher-tech. Use “Notes” on your phone or mobile budgeting apps like Mint or one of the many other Nerd Wallet recently reviewed.
4. A PLAN FOR SEASONAL EXPENSES
It’s smart to look at the year head rather than just the month. Some expenses hit only every quarteror twice a year (dental cleaning copay). Other months offer the promise of reduced variable expenses (a week with generous in-laws at their lake house) or increased costs (because everyone in your family happened to be born in February). Acknowledging and accounting for the natural and regular seasonal variation in your expenses will help you better prepare for them, and may allow you to reduce them.
5. PAUSE BEFORE YOU PURCHASE
One of the secrets to staying slim is to be mindful about what you eat. You’re supposed to ask yourself whether you really want that bag of M&M’s or whether an apple would be just as satisfying. (Yes, I do; no, it wouldn’t.) You can try to whittle down your expenses in the same way. Before you buy something, think about whether you really want or need it. Sometimes the act of pausing to think is enough to keep you from swiping your credit card.
Variable expenses are, by their very nature, difficult to plan for. That doesn’t mean you can’t make a plan for dealing with them. If you can cover these by minimising their impact and dedicating a little more of your budget to them than they might need, you’ll be in good shape.