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What is a Variable Expense?

What is a variable expense? Officially, a variable expense is a cost that changes month to month or occurs irregularly. 

Unofficially, variable expenses are probably the most likely culprit for busting your budget. 

Learning more about what a variable expense is and figuring out how to plan for these sneaky bank account bandits can help bring more peace to your bill pile and to your monthly budget.

What Are Fixed and Variable Expenses? 

Fixed expenses include things like your mortgage payments, cell phone bill, loan payments, or car payment—regular budget items that are generally the same amount each month. With fixed costs, you know the total cost, you know the due date, and adding both to your budget is easy peasy. 

Variable costs are the types of expenses that are a little harder to predict because they either don’t occur regularly or the amount changes. Discretionary expenses like your Starbucks habit or those necessities that you can predict but don’t plan for—holiday gifts, or your twice annual insurance premium—all fall under the umbrella of variable expenses.  

At YNAB we call those predictable yet somehow unexpected budget burglars (like holiday expenses, annual subscriptions, and car repairs) True Expenses and we have a plan for managing them. 

How to Budget for Variable Expenses

Let me break it down for you with a simple question: Would you rather fight a 100-pound shark in one epic battle or one 20-pound shark in five different battles? 

Unless you’re moonlighting as the Hulk, you probably chose the 20-pounder and ate your Wheaties for breakfast. Stay with me and we’ll explain why this choice is the secret to mastering your budget.

It’s a familiar story in budgeting land: you’re doing great at the beginning. You pass on a Five Guys cheeseburger in the name of your budget (and the fries…ohhhh the fries), you bar yourself from Target (because you cannot be trusted roaming those perfectly curated aisles). You sail past month one and month two with your new budget (this isn’t so bad!). In month three, your twice-yearly car insurance comes due: a whopping $700 bill. This single blow cuts into your cash flow and busts your budget in one fell swoop. Ouch. Suddenly you’re dipping into the savings account or racking up credit card debt to cover it.

You might want to give up on your personal finance focus at this point, because a busted budget is demoralizing. But what if there was a nifty little trick to bulletproof your budget—to give it a Kevlar coating the next time a big expense sneaks up on you? I’ll let you in on a secret—here at You Need a Budget (or YNAB for short), we call it Rule #2: Embrace Your True Expenses. 

You want to look into the future at your upcoming variable expenses and bake those costs into today’s budget, but in smaller, more digestible pieces over a period of time. Here’s the reality:

  • You’ll pay car insurance in a few months. 
  • You will likely spend a chunk of money on gifts around the holidays.
  • You might want to take a vacation in six months. 

When you don’t embrace these true expenses, these costs take a bite out of your budget like a 100-pound shark. Instead, we say treat them like five 20-pound sharks. Fight them off one month at a time. Suddenly, big bills don’t elicit the same feeling of a bottomless pit in your stomach. And your emergency fund stays a little safer. 

Here’s how to prep for this common budgeting battle:

1. List Out Large Upcoming Expenses

Pull out that crystal ball and take stock of big costs in the next year. When’s the next insurance payment? Is your laptop on its last leg? Make a list.

Want some examples of variable costs? Here’s an exhaustive list to get you started.

Here’s an example:

  • Car insurance: $1400/year
  • Christmas presents: $500/year
  • Property taxes: $2500/year
  • Amazon prime subscription: $119/year
  • New laptop: $1200
  • Flights and hotel for your friend’s destination wedding sometime next year…or maybe the year after… $800 

*cough*…we said TRUE expenses

  • Oh right. It’ll probably cost more with food, airport parking, gifts, and I guess that hotel is a littttle more expensive than originally thought: $1600 

*coughcough*…but are you really going by yourself?

  • OK FINE! All-in costs for two to attend your friend’s destination wedding: $2800

2. Break Them Down Into Monthly Costs

Here’s the same list broken down as if these costs hit in 12 months.

  • Car insurance: $117/month
  • Christmas presents: $42/month
  • Amazon prime: $10/month
  • New laptop: $100/month
  • Friend’s destination wedding: $230/month

3. Tweak Your List

If this list of true expenses puts your usual monthly budget into the negative, pull out that red pen and do some slashing.

Our example tweaks might look like this:

  • New laptop: $100/month $33/month (save for Chromebook instead of Macbook)
  • Friend’s destination wedding: $230/month $75/month (you decide to book flights with points and share an Airbnb with friends)

As your expenses change throughout the year, you may have more or less to dedicate to the variable costs in your budget, but every dollar helps.

4. Add A Cushion

There will be something you inevitably forget to budget for: a haircut, passport renewal, car tabs. Your cushion just builds a soft, pillowy foam pit for any unexpected budget backflips.

  • Stuff I forgot to budget for: $100/month

5. Treat Variable Expenses Like Monthly Costs

And now, here’s the clincher: start treating your variable expenses like monthly costs—just like your groceries, utility bills, or gas. Save money for these true expenses each month—so when it’s time to pay them, the money is there. 

Include non-monthly expenses in your budget to plan for variable expenses.

This should be simple, right? Well, some budgeting tools make this pretty hard—it’s easy to track what you’ve spent but it’s tough to save for future costs. If you want to be more intentional about saving for future expenses in bite-sized chunks, check out our award-winning budget software: YNAB.

YNAB’s easy-to-use budgeting app makes it simple to turn those 100-lb sharks into less scary, smaller sharks by giving you clear goals to save for each month.

By budgeting for variable expenses, you can pay Christmas off in cash this year!
Gonna pay for Christmas in cash this year!

You’ll finally stop those inconvenient, overlooked bills from sneaking up on you. Our four-part proven framework will help you take back control of your finances (and you’re well on your way—you’ve just learned Rule Two: embracing your true expenses). 

That’s It! No More Ugly Budget Surprises

Now you’re covered for the big one-off bills and even the stuff you don’t see coming with your cushion—including variable expenses into your monthly budget creates some built-in breathing room. By embracing your true expenses, you’ll be financially strong for whatever budgeting battle comes your way.

Ready to stress less about your money? Try a 34-day free trial with YNAB and take control of your financial life.

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What is a Variable Expense?