Variable expense

The word variable describes the amount, not the need. Groceries are a variable expense and a necessity; a streaming plan is a fixed expense and a want. The test is whether next month's total would be the same if you made no decisions, and for a variable expense the answer is no, because every trip to the store and every dinner out is a decision. Variable expenses are the only part of the month a budget can still move once the month has started, since the fixed expenses were settled before it began, which is where a budget is run and where most over-budget months come from.

In a sentence

• "Groceries, dining out, fuel and shopping are our variable expenses, $1,260 a month between them, and the only lines that move week to week."
• "Rent is fixed; the grocery bill is a variable expense, which is why we look at one once a year and the other every Sunday."
• "A variable expense is cut with a rule, one shop a week from a list, not with a phone call."

How it works

Not every expense that moves is variable in the same way, and the kind decides how it is budgeted.

The first kind, the one most people mean, is budgeted from your own history.

1. Find the average. Add up three months of the category from every account and divide by three; round up to a number you will remember.
2. Pace it through the month. On the 10th of a 30-day month, a third of the amount should be gone; the pace is against the amount, not the whole paycheck.
3. Attach one rule per large category. A frequency rule, one grocery shop a week or takeout twice a week, is what moves a variable total.
4. Hold the amount for two months, then trim one step at a time, about 8%, with a new rule for each step, and stop when a month goes over with the rule kept.

Budget amount = last three months of the category ÷ 3, rounded up

An example

Three months of four variable categories.

The swing between the cheapest month and the most expensive is $130, and no single month would have made a good budget: month 2 is high because of one shopping trip, and month 1 is low because dining out came in light. The averages rounded up give $1,260, so about $420 should be gone by the 10th and $840 by the 20th. If the amounts hold for two months, the trim starts with groceries, from $620 to $570, with one rule attached.

Why it matters

Variable expenses are where a budget is won or lost, because they are the only lines that respond to anything done after the month starts. A fixed expense is cut once; a variable one has to be managed every week, and a budget that gives the variable lines an amount without a rule has a wish rather than a plan. The mistake it prevents is budgeting a variable line at last month's amount: last month was one draw from a range, the average is the line, and a line set at the average is over in some months and under in others by design.

Variable expense versus fixed expense

A variable expense changes with your decisions; a fixed expense arrives at the same amount on the same schedule whether or not you think about it. The fixed is changed by a decision made once and audited twice a year; the variable is given an amount, a pace and a rule applied every week. Utilities and fuel sit between them, due on a schedule you cannot skip but varying with use and season, and they are budgeted at their twelve-month average and counted as committed for pacing. See Fixed versus variable expenses for finding your own split.

Common questions

Is a variable expense the same as discretionary spending? No. Variable describes the amount, which moves; discretionary describes the need, which is optional. Groceries are variable and not optional; a subscription is optional and fixed. Most discretionary spending is variable, but the two words answer different questions.

Are utilities a variable expense? They vary with use and season rather than with decisions, so budget them at their twelve-month average and compare each bill with the same month last year. See How to budget for bills that vary every month.

How much should I budget for a variable expense like groceries? Your own three-month average, rounded up, held for two months before it is trimmed. Per-person figures from other households vary by a factor of two or three, so compare only with your own past months.

Should a variable category roll over unspent money? Usually not. What is left in a steady category at month end is a real surplus that should move to savings or debt with a transfer; a carried balance in dining out is a cushion with no purpose that lets the category drift. Lumpy categories, such as car repairs, are the ones that carry. See What to do with the money you didn't spend this month.

Go deeper

• Fixed versus variable expenses, and why the split decides your budget finds your own split from three months of transactions and says what to do with each kind.
• How to budget for bills that vary every month sets a seasonal bill at its twelve-month average and reads each new bill against the same month last year.
• How much to budget for groceries finds your own number from three months of receipts and trims it one step at a time.

Where it shows up in Zypper

Zypper hands you the average when you set the amount. Click a category's amount on the budget page and a History panel shows what you Spent last month and your Monthly average, with a chart of the last four months; click either figure to use it as the amount. Through the month, each category's bar and pill read green when spending is on track, orange when it is ahead of pace by no more than a quarter, and red when the category is over, with the uncommitted budget spread evenly across the month as the pace. Variable categories that trade off against each other, dining out, coffee and entertainment, can be marked Flex to draw from one shared flex budget while each transaction keeps its own category. See Creating your budget and Flex spending for the details, or get started with Zypper to see your own averages.