Differences Between Fixed and Variable Expense

In personal finance, you must know what sorts of expenses are fixed and variable expense. When you are looking at your expenses and comparing one category vs. another, You will see two main types of expenses with the word expense in their name: fixed and variable expense. Fixed expenses are those that you pay monthly. Variable expenses change from one month to the next.

1. Fixed Expenses

Rent or mortgage payments do not change from month to month. You can expect to pay the same amount each month for them. These expenses will stay the same for a long time.

An example of a fixed expense is monthly car insurance premiums. You will pay the same monthly for car insurance, no matter how many miles you drive. As long as you drive a car, this expense will always be the same.

2. Variable Expenses

Variable expenses vary from month to month and year to year. These amounts can change at any time, sometimes quite noticeably.

An example of a variable expense is your monthly food budget. In the past, you may have put $300 on your credit card for groceries each month, but this upcoming year you may lose your job and be forced to cut back.

3. How to Calculate Monthly Fixed Expenses

Fixed expenses are simply the amount that you pay each month. To calculate your monthly fixed expenses, you would simply add up all your fixed expenses and divide by 12. It is your monthly fixed expense number.

Remember, fixed means the annual total will not change over time or across a given year.

Variable expenses change throughout a given year and are called variables. For example, in December we will spend more on Christmas presents than in March.

4. How to Calculate Monthly Variable Expenses

To calculate monthly variable expenses, you must use your annual total. For example, if you plan to spend $300 per month on groceries, you must multiply by 12 to get a yearly total of $3,600.

To figure out how much we will spend on the holidays in December vs. March, we would

subtract the March expense from the December expense and divide by two.

5. Estimating Total Variable Expenses

To determine your variable expenses for the upcoming month, add up variable expenses from the previous month. In our example, we would use the $300 variable expense total from Month 6 and multiply that by 12 to get $3,600 for the upcoming month.

6. Current Year vs. Prior Year Fixed and Variable Expense

You can see that fixed expenses are the same in both years; however, many of your variable expenses will differ due to inflation or rising prices.

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