Rachel Cruze: 3 Ways To Budget for Fixed and Variable Expenses
Remembering finance definitions can feel like a struggle, especially when you’re not familiar with them. But according to experts, they shouldn’t stand in the way of you creating the best budget you possibly can.
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Understanding a few key terms–like fixed and variable expenses–and how they affect your money is helpful, wrote finance expert Rachel Cruze on Ramsey Solutions.
Here’s how she breaks them down below and ways she suggests to fit them into your budget.
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Fixed Expenses
Fixed expenses are regular, recurring costs that remain relatively stable from month to month, regardless of personal spending. These expenses are typically essential and necessary for maintaining your lifestyle. “Overall, fixed expenses don’t change up much each month,” said Cruze.
These might include your mortgage or rent, gym memberships, car or health insurance, streaming services, phone bill and internet services, daycare, and any subscriptions.
Variable Expenses
According to Cruze, these expenses change in dollar amount each month, usually based on how much you use them. These include things like water, electricity, groceries, gasoline, dining out, entertainment, date nights, car repairs, medical bills, and copays.
Unlike fixed expenses, which remain relatively constant, variable expenses are more flexible and can be influenced by your behavior and decisions. “A couple of those expenses might pop up one month and be gone the next–like if everyone in your family gets their teeth cleaned the same week and you have to dish out cash for all those copays,” wrote Cruze.
While some things might be out of our control, the money expert notes that managing these variable expenses is a key part of budgeting. This means making more conscious decisions and adopting strategies to control and optimize our spending.
“Even with food–I know a lot of factors feed into how much you spend on groceries, like rising food costs, dietary needs, and even how many people are in your family,” Cruze highlighted. “But just think through all those things, set a planned spending amount.”
Tips for Saving on Fixed and Variable Expenses
Saving money on fixed expenses can significantly contribute to your overall financial well-being. Here are some savings tips for these:
Assess your utility bills and explore ways to reduce costs, like switching to energy-efficient appliances, adjusting thermostat settings, or renegotiating cable/internet packages.
Review subscription services and consider canceling or downgrading to more cost-effective plans. Look for alternatives that offer similar benefits at a lower cost.
Try free exercise videos to get fit and healthy without the costs of a gym. Many of these videos require minimal or no equipment, which means you don’t have to invest in expensive gym equipment, either.
Spend less on rent by getting a roommate. By splitting the cost of rent, you can significantly lower your monthly housing expenses.
Savings on variable expenses, on the other hand, can be achieved through mindful spending and strategic planning.
Meal plan to save on groceries. Planning your meals in advance and creating a shopping list can help you avoid unnecessary purchases at the store. Cooking at home is also often more cost-effective than dining out.
Use discounts and coupons. Take advantage of discounts, coupons, and loyalty programs when shopping for groceries, clothing, or other items.
Negotiate prices for services like cable, internet, or gym memberships. Many providers may offer discounts to retain your business.
Lower your electric bill by practicing energy-efficient habits like turning off lights and appliances when you’re not using them.
Ways To Budget for Fixed and Variable Expenses
When it comes to budgeting, Cruze says it’s important to follow three steps:
List your income. “Plan for everything coming in.”
List your expenses. “Set those planned amounts for everything going out.”
Subtract your expenses from your income. “This should be zero, meaning you gave every dollar a job.”
According to Cruze, fixed expenses are easier to nail down because you can simply open up your bank account, check last month, “and boom–you know what you’ll spend this month.”
Whereas, variable expenses are harder to figure out in that first month. She notes groceries are a key example. “You probably go shopping a few times a month. So you aren’t glancing at one transaction in your bank or one receipt. You’re looking back at every Kroger, Publix or Aldi trip from last month and adding them all up to get an idea of what you spend here.”
Her biggest takeaway? When you’re listing out expenses, don’t start with fixed or variable–start with what’s essential. This means covering your Four Walls (food, utilities, shelter and transportation) first. “That’s right: Needs come before wants.”
But ultimately, she recommends giving yourself some grace along the way, noting it usually takes three months of budgeting to get the hang of things. “Plan those variable expenses as best as you can to start–it’ll get easier as you go!”
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This article originally appeared on GOBankingRates.com: Rachel Cruze: 3 Ways To Budget for Fixed and Variable Expenses
