Fixed vs. Variable Expenses: What’s the Difference?

While it may sound like financial jargon, understanding fixed and variable expenses can make budgeting feel much less overwhelming. 

It’s actually pretty simple: fixed expenses are your regular bills that don’t change, while variable expenses fluctuate month to month. Once you can recognize which is which, it becomes easier to find areas to adjust your spending. 

Let’s take a closer look at the difference between fixed vs. variable expenses, along with some cost-saving tips and budget strategies to help you meet your financial goals. 

What are fixed expenses in a budget? 

Fixed expenses are costs that usually stay the same every month, for example:

• Rent or mortgage payments
• Car loan payments
• Insurance premiums
• Gym memberships 
• Internet 
• Phone 
• Childcare
• School tuition
• Property taxes
• Streaming services

Although many fixed expenses are considered essential, like housing, insurance, and childcare, not all of them are necessities. For example, Netflix typically charges the same monthly price, so it’s considered a fixed expense, even though it’s nonessential (no matter how badly you need to finish “Squid Game”).😅 

How about periodic expenses? Are they fixed costs? It depends — if the amount is always the same and the timing is consistent (like yearly or quarterly), you’d typically treat it as a fixed expense. 

Since fixed expenses are predictable, they’re easy to plan for, so you can use them as the foundation for the rest of your budget. Just keep in mind that “fixed” doesn’t mean the price is permanent — some of these expenses can still rise over time, like when your car insurance premium goes up after your first year.

What are variable expenses? 

Variable expenses are costs that change month to month, for example:

• Groceries
• Household supplies
• Gas or transportation costs
• Utilities (such as water and electricity)
• Dining out
• Personal care 
• Clothing
• Entertainment or hobbies
• Pet expenses
• Medical bills
• Gifts or donations

These types of expenses often depend on how much you use them, which usually comes down to your habits and lifestyle. For example, if you order a lot of takeout, your restaurant spending will likely be higher. 

Because variable costs fluctuate, they can be trickier to plan for in your budget, and they’re often some of the most commonly overlooked expenses.

That said, variable expenses are usually where you have the most control. Since your choices directly affect how much you spend, this category is generally the best place to start when you’re trying to cut back and save. 

How to save money on fixed expenses

Just because an expense is fixed doesn’t mean it’s set in stone. Here are some cost-saving tips for your fixed expenses:

• Rent or mortgage: If housing costs are eating up too much of your budget, try refinancing your mortgage or negotiating your rent when you renew your lease. You could also consider downsizing to a cheaper place or getting a roommate. 
• Car insurance: Shopping around and comparing providers every six to 12 months can help you save on insurance. However, you could also lower your premiums by raising your deductible or bundling multiple policies. 
• Cell phone plan: Research other plans and carriers to see if you can get a better rate elsewhere. Providers like Mint Mobile and Visible often use the same cell towers as larger carriers but cost significantly less. 
• Subscriptions: Review your subscriptions and memberships regularly to make sure you’re still using all of them. Lunch Money lets you view your subscriptions under “Recurring Items,” making them easier to track.

How to save money on variable expenses

When trimming the fat from your budget, it’s usually easiest to start with your variable expenses, since they’re often tied to your lifestyle. Here are some frugal living tips to help you save:

• Transportation: When buying a vehicle, choose a fuel-efficient used car with low maintenance costs. Carpool when you can, combine errands into one trip, and consider taking public transport.
• Entertainment: Take advantage of community events, such as festivals or free museum days. Your local library can also be a great free resource for books, movies, music, and more. 
• Groceries: To save on groceries, plan your meals ahead of time, buy in bulk (when it makes sense), and stick to your grocery list when you go to the store. You can also set a weekly grocery budget to help you stay on track. 
• Dining out: Try limiting restaurant meals to once a week or setting a monthly limit. If you choose takeout instead of dining in, you could save on menu prices and tips. 
• Utilities: Learn how to cut your electricity bill, like installing a programmable thermostat, using smart power strips, or upgrading your home’s insulation. You can also lower your water bill by taking shorter showers and fixing plumbing leaks.
• Clothing: Set a monthly or quarterly shopping budget to help manage spending. When you do need an item, shop thrift stores and off-season sales to save money. 

How to list your fixed vs. variable expenses in Lunch Money

Lunch Money makes it super easy to stay organized and keep track of your costs. Here’s how to do it:

1. Connect your accounts: Start by linking your bank and credit card accounts. Lunch Money will automatically pull in your transactions and organize them by category. 
2. Label each expense: Go through your transactions and tag each one as either a fixed expense (like rent or insurance) or a variable expense (like groceries or gas). This helps you clearly see which costs stay the same each month and which ones change.  
3. Look for spending trends: Over time, you’ll be able to spot patterns in your variable expenses, like when your utility bills spike or you spend more on dining out. This can help you identify areas where you can cut back and save more.
4. Track recurring bills: In Lunch Money, go to “Recurring Items” to view all your expenses that recur. This feature also lets you check for upcoming bills so you aren’t caught off guard.
5. Set goals and budgets: Whether you’re paying off debt or boosting your savings, you can create custom budget categories in Lunch Money for your financial goals. That way, you can make sure your spending aligns with your priorities and track your progress along the way. 

Summary

Knowing the difference between fixed vs. variable expenses can help you build more effective budgeting strategies and gain better spending control. 

The key is that fixed expenses usually remain the same each month, while variable costs often fluctuate with your lifestyle. 

Although reducing your fixed costs may take some planning, research, and negotiation, it’s definitely possible. Variable expenses, however, usually require you to change your day-to-day habits. 

With Lunch Money, you can create a monthly budget and track your expenses, helping you save more, pay down debt, and reach your financial goals. Give it a try today with a free 30-day trial and see how simple budgeting can be!