Fixed Vs. Variable Expenses: What’s the Difference?
6 Min Read | Published: April 12, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Discover the difference between fixed and variable expenses and how each impacts your monthly budget.
At-A-Glance
- Fixed expenses don’t change in amount from one period to the next. They include things like your rent or mortgage payment, car payments, and insurance.
- Variable expenses can fluctuate from one period to the next and include things like gas, groceries, and entertainment.
- Learning the difference between fixed and variable expenses could help you budget and manage your finances more efficiently.
Many expenses can generally be classified as either fixed or variable expenses. Your monthly budget will contain both, and learning the difference will help you in your financial planning, regardless of your income and budget size.
This article will explain the difference between fixed and variable expenses with examples of each.
Fixed Expenses
Fixed expenses are costs that typically don’t change in amount from month to month. They are more predictable since they remain the same, making them easier to plan for.
Many fixed expenses are either related to contracts or certain basic living costs. Here are some examples:
- Rent/mortgage
- Insurance premiums
- Auto payment
- Loan repayment
- Subscriptions (like streaming services)
- Certain utilities whose amounts are relatively stable (such as internet access)
Variable Expenses
Variable expenses are those that can fluctuate from one period to the next. They may change based on use, consumption, or outside economic factors like supply or inflation.
Here are some variable expenses you may be familiar with:
- Gas
- Groceries
- Certain utilities (such as electricity and water)
- Entertainment
- Bars and restaurants
- House/car maintenance/repairs
As you can see, some variable expenses are more “variable” than others. Certain expenses change only slightly since these tend to be “needs” or non-discretionary expenses.
Groceries are a good example. Your grocery bill may not be the same amount each month, but it likely won’t fluctuate much. And you likely need to buy them every month.
Others, like travel, are much more variable. These depend on your choice. Trips can vary widely in their cost, and you may not travel every month.
Fixed vs. Variable Expenses Compared
Fixed expenses tend to make up the core of your monthly spending, as they never change. Variable expenses are less predictable but offer more flexibility to adjust spending.
| Fixed Expenses: Don’t fluctuate from month to month | Variable Expenses: May fluctuate from month to month |
|---|---|
| Rent/mortgage | Gas |
| Insurance premiums | Groceries |
| Auto payment | Certain utilities (like electricity and water) |
| Loan repayment | Entertainment |
| Subscriptions (like streaming services) | Bars and restaurants |
| Certain utilities whose amounts are relatively stable (such as Internet access) | House/car maintenance/repairs |
How to Budget for Fixed and Variable Expenses
Start by categorizing every expense as fixed or variable.
Then, add up your fixed costs. Since most of these don’t change and are non-negotiable, you’ll need to allocate enough income to cover them first.
For variable expenses, review your past few months and try to calculate rough averages for each expense. Use this data to set approximate amounts for monthly variable expenses going forward. Try to reduce variable spending if it exceeds your remaining income after fixed expenses. Certain fixed expenses, like streaming services, can be minimized if needed as well.
Remember: It’s okay if your expenses fluctuate. Track variable spending and adjust it or your budget as needed. The key is to cover your mandatory costs while having enough to live on comfortably and save for the future.
The Takeaway
Fixed and variable expenses each play a role in your monthly budget, so understanding which expense falls into which category is crucial. While fixed expenses are predictable, variable expenses change each month, so you may find that these expenses offer you the most opportunity to reduce expenses and allocate money elsewhere.
1 “What’s a credit inquiry?,” Consumer Financial Protection Bureau
2 “Credit Reports and Scores,” USA Gov
Bradley Schnitzer is a writer and email strategist who has covered personal finance and small business topics for over five years. He is passionate about personal finance and helping others understand their money.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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