How to Budget Fixed and Variable Expenses (Plus Examples and Ways to Save Money)

When I think about fixed expenses in my budget, the first thing I think of is my mortgage, monthly share amount for our health care sharing ministry, and our car insurance.

Here are examples of fixed expenses:

• Mortgage or rent
• Car insurance
• Health insurance premium
• Life insurance premium
• Car loan payment
• Homeowner’s insurance
• Debt payments
• Cell phone bill (if you aren’t charged per data usage, minutes, or number of texts)
• Internet service
• Cable or streaming services
• HOA fees
• Parking fees
• School tuition
• Some utilities (trash and sewer)
• Car registration fees
• Child care, daycare, and/or a babysitter
• Parking fees
• Gym membership

Some of those expenses can be changed, but not without some effort. Take your mortgage for example, if you wanted to change that, you would have to go through the process of refinancing.

There are some expenses, like health insurance, that will inevitably change on their own, but that’s most likely a once a year change. In your budget, that expense stays fixed for a year, and you may need to assess if the cost goes up.

Fixed expenses make up some of the biggest portions of your budget – that’s definitely the case with my budget. And even though they can be difficult to change, once you do adjust them, you can easily save money.

Here’s what I mean: Take a look at your cell phone bill. If you’re with one of the big three carriers (Verizon, T-Mobile, or AT&T), you might be paying around $70 a month for one line with unlimited data. That’s $840/year.

If you switch to a cheaper cell phone plan, you can reduce your monthly payment to around $25/month, which equals $300/year.

By spending a couple of hours switching your cell phone plan, you can easily save over $500 a year. And that’s on just one fixed expense.

Think about how much you could save if you also refinanced your house, shopped around for car insurance, got rid of your car payment, and cut cable. Those are all realistic options that can help you save thousands of dollars over the course of a year.

Because they can change, it might sound hard to budget for variable expenses, but there are a few different methods that are actually pretty easy and effective. The first thing you want to do is to find out how much you’re spending on your variable costs.

You can track your monthly spending with pen and paper, through Excel spreadsheets, or by using a budgeting app to track your expenses for you. This will show you how your variable expenses fit in with your overall budget.

The next step is to separate your fixed expenses – you know what those are now, so this should be much easier. You can spend some time here seeing if there are ways to cut some of your fixed expenses. This will give you more flexibility with your variable expenses and savings.

Now it’s time to pick a strategy for budgeting your variable costs.

• Zero-based budgeting: This is a method popularized by Dave Ramsey and the budgeting app YNAB. The idea is that you take your income, then subtract expenses until you get down to $0. You’re giving every dollar you make a job. It takes a little to get used to, but it’s actually very flexible and great if you’re trying to pay off debt.
• 50/30/20: This strategy helps you divide your money towards wants, needs, savings and debt. Once you learn how to divvy up your money, you can start adjusting your variable expenses accordingly.
• Cash envelopes: A cash budget, sometimes called envelope budgeting, is when you withdraw cash from your bank account and deposit it into envelopes for spending. Not all budget items can be paid with cash, but you can use cash for most of your variable costs: groceries, going out to eat, getting your haircut, filling your gas tank, etc. It works well because cash is a tangible reminder of how much money you can afford to spend on certain items.
• Sinking funds: A number of readers in my M$M Facebook community swear by sinking funds because they’re a really effective way to save for variable expenses. The idea is that you set a monthly savings goal for each sinking fund, and when you want/need to spend money on those expenses, the money is available. You don’t have to consider how those variable expenses affect this month’s budget, because you’ve saved up for them in previous months.

Read more at 19 Budgeting Tips to Help You Take Control of Your Money.

After tracking your spending, you might realize that you need to cut some of your variable costs to make your budget work. This is really common because a lot of those costs are discretionary.

But here’s the struggle many people face with trimming variable expenses: it takes self-discipline. You can lower some of your fixed costs with a little research and a couple of phone calls.

Lowering variable expenses requires you to change your spending habits, set goals for yourself, and create a realistic budget. Easier said than done, right?

Here are a few tips that will help you save money on your variable expenses and stick to your budget:

• Check the calendar so you know if there are any birthdays or holidays coming up that you need to plan for
• Wait at least 24 hours before making any unnecessary purchases
• Focus on your long-term financial goals and remind yourself of them if you’re about to go over budget
• Set up spending alerts on your bank account, credit card, or through a budgeting app
• Try a no-spend challenge
• Don’t fall for lifestyle inflation – when your income increases, it doesn’t mean your spending has to go up too
• Talk about money with your partner and hold each other accountable
• Create new habits, like replacing online shopping on your lunch break with listening to a podcast or starting a blog

Check out Start Sticking to a Budget | 29 Tips for Smarter Spending and More Savings for even more tips.

For most people, an internet bill is a fixed expense. You pay a set dollar amount each month and have set download speeds, a data cap or unlimited data. But if you pay per the amount of data you use, then your internet bill is a variable expense.

Debt like your mortgage, student loan payments, and car loans is a fixed amount that you pay every month. You can pay extra each month, which I would then classify as variable because if you had to change that amount quickly you could.

Credit card debt is a little trickier because technically you’ve used a credit card to pay for a fixed or variable expense, but your credit card bill can change on a monthly basis. See the issue?

If you are trying to pay off your credit card debt, I honestly wouldn’t get hung up on classifying it as fixed or variable and focus on paying it off. Figure out how much you can afford to pay towards your debt each month, get a side hustle to boost your debt payoff, and don’t add to your debt.