How to budget for variable expenses

Microsoft 365 Life Hacks > Budgeting > How to budget for variable expenses

June 23, 2023

When you’re setting up a monthly budget, you’ll encounter two major types of expenses: fixed and variable. Fixed expenses are exactly what the name describes: You pay the same amount every month or pay period, a number that’s laid out in a contract. Rent, mortgages, insurance, and loans all fall into this category. Conversely, variable expenses are different from month to month.

How to budget for variable expenses – Microsoft 365 (1)

Variable expenses can be tricky: Since they’re not set in stone, they can vary and fluctuate from month to month. Will you find yourself spending more on dining out this month, or were you able to save on your utility bills? These expenses can spike with little warning, and you may not realize that your electricity bill has gone up this month—until you get the bill. How can you prepare for these expenses? Here are four simple steps you can take to incorporate into your budget.

How to budget for variable expenses – Microsoft 365 (2)

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Identify all your variable expenses

Variable expenses are determined by various factors such as usage, demand, or seasonality. Key categories for variable expenses can include:

Utility bills
Credit card bills
Groceries
Transportation and gas
Travel and vacations
Entertainment (shows, dining out, etc.)
Healthcare
Home repairs and maintenance

These are all considered variable expenses because you may spend more or less in each category during each pay period. You might pay more for gas and heat in the winter months, and you might spend more time dining out when the weather is nice. Budgeting for occasional expenses like a family vacation or unexpected health and home emergencies can impact your budget differently each month.

“Will you find yourself spending more on dining out this month, or were you able to save on your utility bills? These expenses can spike with little warning, and you may not realize that your electricity bill has gone up this month—until you get the bill.”

Look at past spending so you can track your trends

Once you’ve taken stock of your past spending, you can extrapolate this to a snapshot of your own spending habits.

Use an Excel spreadsheet to track your monthly expenditure, and rely on past credit card statements for an overall view of total spending. Many banks and credit card companies offer online tools that will allow you to break down your monthly spending by individual categories, which makes it much easier to see where you can save money in your budget.

Predict how much you’ll spend in each category

Take the information you learned from examining your past expenses as a guide to estimate how much you’ll need to budget for each category in the following months.

Barring any major life events—a new member of the family, a major home repair, or moving to a region with a different climate—you’ll likely find that your monthly spending per category will all fit within a range, with few outliers that can throw off your average spending.

Understand your financial goals: are you saving up for a once-in-a-lifetime excursion, a new car, or a move to a new home? Whatever budget you set from this point forward, consider this as a goal to work towards, and adjust your variable expenses accordingly. After all, it doesn’t hurt to dream.

Set a budget for each expense, and review it regularly

Avoid overspending by determining a max level of what you’re willing to spend on in each category.

By this point, it should be much easier to fathom what you’re spending in each category of variable expense. If you find yourself spending too much on going out to dinner, then embrace cooking at home, stocking up on weekly groceries, and meal planning. Buying store-brand products versus name brand items can go a long way to helping you get more for your money. Be sure to put any leftover money into your savings or in an emergency savings fund so that when your budget can allow for it, you can look forward to a fun indulgence like a night on the town or an unforgettable travel experience.

Be sure to check your budget regularly and adjust it accordingly. Spending in one category can easily elude you without you realizing it. There are nights where you just want takeout, for example, and frequent splurges on sales and gifts that can add up. By staying on top of your monthly budget, you can nip out-of-control spending in the bud.

Don’t just stop here: learn how to take care of necessary expenses, manage a freelancer’s budget, and track your expenses with Excel.