Handling Variable Expenses In Your Budget
A variable expense is a bill that varies from month to month. Some examples for me are gas (due to changing prices), utilities: my electricity, gas (heating) and water and food. These 3 categories are the main focus of my budget because the varying bills can easily cause me to overspend. Expenses, like my mortgage, are rarely given a 2nd thought because the payment each month is exactly the same and automatically paid. I manage each of these variable expenses differently.
Gas!: Oi vey is an understatement. I fill up once a week and drive out of my way to fill up at Costco each week and save almost $1.00 per gallon vs the gas station by my house. Recently I have been paying $4.40/gallon vs over $5.40 by my house. Due to Russiaś invasion of Ukraine, gas prices are likely to keep climbing which means I will have to add money to this budget category by taking from my joyous yet frivolous spending category (boo!). Normally this variable expense does not stress me out because I give this line item some cushion due to fluctuating prices. The prediction of $6/gallon gas will definitely put me over budget. My dad always says, Ït is just money; you can make more of it.”Ha! Sadly my teaching salary is not getting a raise anytime soon so I will have to redirect money from my random spending category to gas. Variable Expense Lesson #1: overestimate the amount you need every month so you get a pleasant surprise of under spending each month instead of the painful navigating of over spending. During times of crisis, you will have to pull from frivolous spending to cover the basics (double sad face). If your budget is already pretty tight, with minimal frivolous spending, it might be time to get creative (carpooling, public transportation, negotiating a raise or a few days of work from home, picking up a side hustle to earn a few extra bucks a month, etc.) I hope my car doesńt die anytime soon (going 14 years strong!), but my next car will definitely be more fuel efficient or electric.
Utilities: This category causes me stress and therefore I over budget to compensate. My water, electricity and gas (heating) has crazy swings from season to season. Scott and I allocate $490 a month to these bills which tend to run a surplus in the Spring and Fall when all bills are lower and get drawn down in Winter and Summer. For example, in the summer our lowest electricity bill was $44! This winter (when we are using our heater = more gas), our bill is $400 (a 33% increase from last year!). Our recent water bill was $97 (winter) and over the summer our bill was $574 (and this is with using Bailey’s bathtub water to help water the lawn). It took a full year of living in this house to get our monthly numbers right. We had to increase this monthly allocation a few times so we didńt go over budget.
Remember that an increase in one category means a reduction in another category or a reduction in savings. I always look to trim from another category before I cut savings, which is sometimes inevitable if there is nothing left to cut. Also if you rent an apartment, you usually don’t have to pay a water bill. For my non California readers, yes these water prices floor me as well. These prices are not consistent throughout the state and water is much cheaper in Sacramento. only 1 hr away. Variable Expense Lesson #2: budget for your most expensive months.
Food: After our mortgage and daycare, this is our 3rd largest expense. Our food budget is reasonable. It is a high dollar amount each month but it is not excessive while allowing for 1-2 meals bought out each month. However it is easy for me to overspend in this category, which happens about 25% of the time. I update my budget every 1-2 weeks mainly to check in with my food spending to try to keep us within budget. When I overspend this category, I have to pull from the surplus that usually comes from my entertainment and random spending category. Since COVID, this category goes consistently unspent which gives the rest of my budget a nice cushion and still leaves money at the end of the month to invest in my early retirement account. Variable Expense Lesson #3: Cap your spending. If you are overspending each month, you may need to increase your monthly allocation as your reality is not aligned with your desired spending. If your overspending is leading to credit card debt and unpaid bills, more in depth work is needed.
Summary: budget for the highest possible amount, adjust and change as needed (especially during crisis) and update your budget frequently so you don’t overspend.
Variable expenses take the most monitoring and attention. For me this attention is worth it so I have money to save for emergencies, travel and splurges and I have money to invest for retirement and early retirement.
Disclaimer: I am an educator, not your personal financial advisor. Please make sure to do your own research before moving forward with any actions discussed in this blog post.
Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Always remember to make smart decisions and do your own research!
