How to Budget for Fixed and Variable Expenses

Quick Answer

Budgeting for fixed expenses that remain the same each month is easy, but it gets more complicated once you factor in variable costs that are less predictable. It’s possible to budget for fixed and variable expenses—it just takes a little planning and trial and error.

Young woman sitting on her couch using a laptop to budget for fixed and variable expenses.

The process of budgeting would be a lot easier if all our expenses were exactly the same from one month to the next. Unfortunately, that's not always how life works. You may have plenty of expenses that remain the same every month, but it's normal to have some costs or spending categories that fluctuate. There are also irregular expenses that only arise periodically, which can make planning difficult.

When you're budgeting, it can help to break your expenses down into fixed and variable expenses to ensure your plan reflects reality.

What Are Fixed Expenses?

Fixed expenses are the predictable, recurring costs that typically stay the same in your budget from month to month.

Common fixed expenses include:

  • Mortgage or rent payments
  • Loan payments (car loans, student loans, personal loans)
  • Utility bill payments that don't fluctuate (possibly internet and phone bills)
  • Recurring subscriptions (streaming services, gym memberships, digital storage)
  • Insurance premiums (car insurance, health insurance, life insurance)
  • Day care or ongoing child care
  • Monthly prescription medications
  • Automated transfers to savings (retirement accounts, college funds, savings accounts)

Fixed expenses are the easiest to budget for since you know what to expect, and may get some advance notice if they rise or fall.

What Are Variable Expenses?

Variable expenses, on the other hand, are inconsistent. This could be because they fluctuate—like how your heating bill is high in the winter but low in the summer—or because they happen infrequently, like surprise car repair costs or charges billed annually or quarterly.

Variable expenses are more challenging to plan for since they can change. If your income is consistent, variable expenses mean you'll have more disposable income leftover in some months and less in others.

Examples of variable expenses include:

  • Credit card payments (unless you pay the same amount each month)
  • Utility bills that vary each month, including water or energy bills
  • Entertainment, such as dining out and tickets to events
  • Travel
  • Car maintenance or repair
  • Emergency medical, dental or veterinary expenses

How to Successfully Budget for Fixed and Variable Expenses

Budgeting would be simpler if all our expenses were fixed, but it's still possible to create a budget that accurately covers both fixed and variable expenses. It just takes a little trial and error.

Before you begin, brainstorm your financial goals so you can incorporate them into your budget. This could be debt payoff goals, like paying off student loans in five years, or savings goals, like going on a family vacation.

Here are some steps to get started with your new budget.

1. Determine Your Income

Tally your monthly household income. This should be your take-home pay after taxes and other deductions. If your income varies from month to month, divide your annual income by 12 to find your average monthly income and use that as a starting point.

2. List Your Expenses

Make a list of all of your regular, fixed expenses. You'll want to review your recent bank and credit card statements so you don't forget anything. Fixed expenses don't just include bills, but anything you put money toward, including debt payments and savings.

Then, list your variable expenses. One way to budget for monthly variable expenses is to calculate an average. For example, if your grocery bill fluctuates, look at past statements and write down your grocery costs each month for the past year. Divide this by 12 for the monthly average you can use in your budget each month; just know it will actually be a bit higher or lower some months. For some items like that, you may be able to self-impose a spending limit, though you can't control some things, like unpredictable energy bills.

While you're on variable expenses, you may want to include items that arise regularly but not monthly, such as car maintenance. Once you get on a budget, you can decide if you want to build the costs into your monthly budget or set aside some money in a savings account each month to cover infrequent costs.

3. Look for Places to Cut Back

Don't just implement a budget with your current expenses; take this time to see if there are places to cut back, particularly among your discretionary expenses.If there are any recurring costs you can drop, consider diverting your savings to areas that might need it more, like your emergency fund.

With your variable expenses, you can also research to see if there are more affordable or consistent options available. For example, you could get quotes for different services or find ways to make those expenses more consistent, like setting spending caps.

Once you've made these adjustments, you can allocate goals for how much to spend in each category every month.

4. Decide on a Budgeting Strategy

Now that you have the numbers, figure out how you want to budget. There are many tactics and styles depending on your spending personality and preferences, from digital apps to spreadsheets to cash in envelopes. There are also budgeting strategies that focus on debt repayment. You can be as detail-oriented and hands-on (or not) as you want. You can track your spending in real-time or check in weekly or monthly. The goal is to find a system that works for you.

One helpful guideline you can employ with any type of budgeting is the 50/30/20 rule. This approach has you put 50% of all income toward necessities, 30% or less toward discretionary spending and at least 20% on savings and/or debt payments. It's not suitable for every person's budget, but it's an option to consider.

Budgeting can be adapted to meet your needs. There are ways to budget with inconsistent income, budget with a very low income, or even budget biweekly rather than monthly.

5. Get Started

Now it's time to put your budget into practice by spending and saving according to your new goals. It can be an adjustment at first, so cut yourself some slack and consider ways to make it easier. For example, if your budget includes a fixed monthly amount for savings, set up an automatic transfer from your checking to your savings account so it requires no action.

6. Check In and Adjust

After a few months, assess how your budget is holding up. If you don't like the budgeting style you chose or had trouble sticking to it, you might switch to another to see if that works better for you. Reflect on whether you felt like your budget didn't leave enough for certain categories, or left too much in another, and move things around as needed.

Additionally, given the changing nature of variable expenses, it's also important to check and see how your expected spending stacked up to your actual spending. If you significantly overestimated or underestimated, adjust your budget accordingly so it's more accurate. It may be worth doing this type of check-in periodically.

Budgeting Can Also Help Your Credit

Getting used to a new budget can be tricky, so it's worth doing what you can to make the process easier. Similar to how you can set up automatic transfers to savings, you can set up automatic payments to loans, credit cards and utilities.

Not only does this take care of some budget items without you even having to think about it, but it also ensures you pay your bills on time—one of the most important ways to build good credit. By sticking to a budget and spending more deliberately, you may also find that you're able to more easily meet your debt and savings goals. If you want to see how your on-time payments and debt payments impact your credit score, you can check your credit score for free on Experian anytime.