How to Make Sure Variable Expense Won’t Sink Your Budget

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What is a variable expense? A variable expense can change in value from one year to the next. It could be a cost that changes with the season, like heating bills during the winter, or costs like food and clothing, which change as you go through different stages in life. It could be something more obvious, like the cost of your car, or something more obscure, like a loan repayment. Whatever it is, variable expenses will have a value that may go up or down from one year to the next. You might be able to control costs by spending less on these things in certain months – maybe you consume fewer meals in December and January, for example. More importantly, though, you’ll want to ensure you can handle potential differences in your income when these costs rise or fall.

How to Make Sure Variable Expenses Won’t Sink Your Budget.

  1. Identify all your variable expenses.

You’ll need to look at your spending and then do an audit of every cost you can think of, which varies from year to year. You’ll probably find that this is not an easy task – you may even have to use some spreadsheets if you’ve got a house or car bills which change from one year to the next. It’s essential to try and keep a proper record of your actual costs rather than arriving at estimates.

  1. Identify each variable expense in the budget.

Once you’ve identified two or three of your main variable expenses, think about how they fit into the rest of the budget. Does this particular expense need to be included in the budget at all? If it is, and you’re not comfortable with it, work out if you can get rid of the expense altogether or whether you could reduce it. You might be able to keep some of your variable expenses in the budget without adding much to the overall cost, for example, if any of these items are tax-deductible. You may find that food and light bills don’t affect your budget nearly as much as you thought they would.

  1. Choose the right budgeting approach.

The first thing to note here is that you can’t do everything in your head. You’re likely better off using some spreadsheet or budgeting software package, like Quicken or MoneyWorks, to ensure everything is correctly accounted for. It will also help you identify any fixed costs lurking in your budget, which could endanger the whole plan if anything increases these expenses.

  1. Know the effect of interest rates on variable expenses.

Every month’s budget includes a certain amount for the repayments on all your debts and loans, even if you pay them off in full each month. You’ll want to ensure that the amount you’re paying here is fixed and will not change from one month to the next. If you have variable interest costs for loans, for example, with your mortgage, you’ll also want to include them in the budget.

  1. Make sure you’re prepared for unexpected events and changes in income.

Hopefully, you’ll be able to predict how your expenses will likely behave in the future based on experience. However, if this doesn’t work for you, then you can do some things to make sure you’re prepared for what’s going to happen without sacrificing too much of your normal consumption levels.

If you’ve ever tried to create a budget, you’ll know that this is not an easy task. As well as telling you what the income will be and what sort of expenses are required to make life more bearable, a sensible budget should also look after your long-term financial interests. It should ensure that your income is sufficient to cover every expense and leave some left over for savings or even an emergency fund for unexpected costs.