Fixed Vs. Variable Costs: Definitions, Examples And Key Differences

When creating a budget, you may start off by listing all of your bills and monthly payments. These might include recurring expenses, like your car insurance bill or a mortgage payment. But other costs you may need to budget for aren’t as predictable. For example, you might not think about money for gas, a last-minute concert ticket or a birthday present.

Separating your expenses into fixed and variable costs can be a helpful way to streamline your budget and prepare for those unexpected purchases or emergency situations. But what exactly are fixed and variable expenses, and what are the best ways to manage these different costs?

Let’s walk through examples of fixed versus variable costs and explore some strategies on budgeting for (and saving money on) these types of expenses.

What Are Fixed Expenses?

In personal finance, fixed costs are recurring expenses that stay relatively constant month to month. Throughout the year, you may encounter instances where your fixed costs change slightly, whether it be because your landlord raises your rent, your car insurance premium increases, or something else.

Despite some occasional variations, your fixed expenses should be pretty predictable. In other words, there’s little to no guesswork involved in figuring out your fixed expenses. If you’re in the process of creating or updating your budget, your fixed costs should be roughly the same every month.

Examples Of Fixed Costs

When considering your fixed expenses, think about the bills you pay every month (or, in some cases, every week, every other month, annually and so on). Some common examples of fixed expenses include:

• Rent payments
• Mortgage payments
• Renter’s insurance
• Homeowners insurance
• Property taxes
• Cell phone, internet and other cable bills
• Car payments
• Personal loans, student loans and other loan payments
• Childcare costs
• Health insurance premiums
• Memberships and/or subscriptions (a gym membership or streaming service, etc.)

What Are Variable Expenses?

Unlike fixed costs, variable costs change frequently and often depend on your specific needs. Your variable costs may also change based on economic and market conditions. For example, fluctuating gas prices can affect how much you pay every time you fill up the tank in your car.

While some variable costs can still be considered recurring expenses (let’s say you go grocery shopping every Sunday), these costs are more or less unpredictable because the amount you pay can change every time you make a purchase. This can make budgeting for variable expenses a bit more challenging than budgeting for fixed expenses.

Examples Of Variable Costs

Due to the nature of variable costs, they can change from month to month or person to person. Below are some of the more common examples of variable expenses you might include in your budget.

• Grocery shopping
• Dining out
• Gas and other transportation costs
• Clothes shopping
• Home maintenance and repairs
• Vehicle repairs
• Hobbies, entertainment and other activities
• Healthcare costs and/or medical bills

Fixed Cost Vs. Variable Cost: What’s The Difference?

The primary difference between fixed and variable costs is that fixed expenses stay the same over time and variable expenses change. While both types of expenses can be recurring, fixed costs are more predictable because you pay the same amount – or close to the same amount – every time you make a payment.

So, even though you may consistently spend money on specific variable expenses, like groceries, it doesn’t mean the amount will be the same every time you check out at the store.

Budgeting for fixed versus variable costs might also be different. Because you likely pay your fixed costs on the same day every month (for instance, your car insurance payment might be due on the 15th of every month), it can be easier to plan for these expenses. Many people utilize automatic payments to ensure their fixed costs are covered.

With variable costs, you might have to establish specific budgeting guidelines to cover these expenses. For example, once your fixed costs are covered, you might have to budget no more than $100 every week for groceries. More on budgeting tips below.

How To Manage Fixed Vs. Variable Costs

Many techniques are available to help you stay on top of your fixed and variable costs. Most of the time, it comes down to creating a realistic budget and managing your spending habits. Next up are some tips for covering your fixed and variable expenses. 

Prioritize Essential Costs

When sitting down to create a budget, most people start by listing their fixed costs as well as any essential living expenses. This process may include budgeting money for groceries, childcare costs and health insurance coverage. Prioritizing these types of expenses first not only ensures that your monthly bills are covered, but it guarantees your basic needs are met. 

Evaluate Your Spending Habits

Once your fixed and essential variable expenses are accounted for, you’ll probably want to consider how to spend the remainder of your budget. It can be helpful to review previous purchases to identify how much money you spend on different variable costs. For example, how much do you typically spend on takeout or restaurant meals every week or month? What about shopping for clothes, home goods or personal care items?

Evaluating how much you tend to spend on different variable costs can help you budget for these expenses going forward. It can also help you identify areas where you’re overspending and could benefit from cutting back.

Use A Budgeting Strategy

If you find it difficult to stay within budget or you’re looking for a more structured way to spend and save, try using a specific strategy for budgeting. A budgeting technique can help you stay on top of your fixed and variable costs and push you to achieve your financial goals. Some of the more common budgeting strategies include:

The 50/30/20 method: The 50/30/20 rule states that 50% of your monthly income goes toward your “needs” (including fixed and living expenses), 30% goes to your “wants” (including variable costs, like clothes shopping) and 20% goes toward savings.

Zero-based budgeting: This method involves choosing where to allocate your money in a meaningful way so you have $0 left to assign anywhere. You’re essentially budgeting all of your funds toward different fixed costs, variable costs and savings so there’s no money left to allocate. 

The cash envelope method: The cash envelope system involves putting your funds into envelopes and using each envelope for a different fixed cost, variable cost or savings account. While this might not be the most practical budgeting technique, it requires discipline and forces you to look at all of the money you spend every month.

Can You Save Money On Fixed Vs. Variable Expenses?

Saving money on your fixed and variable costs is entirely possible. In some cases, lowering your fixed expenses is easier than it seems.

How To Save On Fixed Costs

If you want to lower your monthly car insurance payment, for instance, you might just have to take a defensive driving course or shop around for a lower rate with a different provider. Rocket Money℠ can also help you save on some of your fixed expenses by negotiating your bills for you.

If you upload your bills to the Rocket Money app, our team of expert negotiators will help find the best rates for your cell phone, cable and more.

Other fixed expenses, like your mortgage payment, can be trickier to change or lower. If interest rates are lower than when you initially took out your mortgage, you may be able to refinance to a better rate. Speak with your lender to learn about your options.

How To Save On Variable Costs

Saving on variable expenses ultimately depends on your lifestyle and spending habits. For instance, you might need to forgo a shopping spree or takeout order to save more money. Cutting back on your variable expenses might involve a bit more self-control, but it’s typically possible.

The Bottom Line

Understanding how much you spend on your fixed versus your variable costs every month can make budgeting decisions easier. And if you have the Rocket Money app, managing both your fixed and variable expenses can feel more streamlined than traditional budgeting methods.

The Rocket Money app provides a high-level overview of your monthly bills and recurring expenses, so you know exactly how much you spend on fixed costs every month. Plus, it estimates how much you typically spend on purchases like groceries, dining out and shopping, so you can effectively keep tabs on your variable costs, too.

For more ways to manage your personal finances, download theRocket Money mobile app today.