Managing Costs: Fixed Expenses vs. Variable Expenses Compared

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Contributor, Benzinga
October 31, 2023

A major part of budgeting is projecting fixed expenses versus variable expenses. The fixed ones are often much simpler to plan for because they will change less frequently and often the merchant provides notice. Variable expenses can change drastically from one month to the next, such as in the case of energy expenses for your household. Learn what these expenses are and how to best budget for them.

Understanding Fixed Expenses

What Are Fixed Expenses?

Fixed expenses are those that you can project with absolute certainty. They show up monthly, such as a gym membership, or annually, like in the case of your homeowners insurance renewal. 

Changing fixed expenses is more challenging than trying to save money on variable expenses because they are something you likely agreed to with a contract. 

A nice part about fixed expenses is that they hit at the same time each month, quarter or year based on your agreement. These expenses can be necessary, such as your mortgage or rent payment or they might be discretionary, as is the case with many streaming services and memberships to local attractions.

Although the amount is fixed, you might be able to lower the costs by switching to a different subscription plan, evaluating competitors or renegotiating the contract. One example of renegotiating a contract is a mortgage refinance where you essentially restructure the mortgage based on today’s rates and start your payment term over again, which can spread out your monthly payments longer and at a lower interest rate, making the fixed cost lower.

And while insurance is considered a fixed rate, you can shop around for other carriers, change your coverage or increase your deductible. 

Lowering fixed expenses can save you money each month and with great reliability. Often, these expenses are the ones that consume the larger part of your budget, which means trimming them can have a large impact on your expenses. For example, saving $100 per month on your rent or mortgage translates to $1,200 per year, which you can put into your savings and grow over the next several years to meet financial goals or save for a large purchase.

Examples of Fixed Expenses

Unsure where to look for your fixed expenses in your budgets? Here are some examples of fixed expenses you might evaluate.

  • Car lease or loan payments
  • Cell phone plan
  • Childcare
  • Insurance premiums
  • Internet service
  • Memberships (gyms, local attractions, professional associations, etc.)
  • Rent or mortgage
  • Student loans
  • Subscriptions (streaming services, meal kits, etc.)
  • Tuition

Understanding Variable Expenses

What Are Variable Expenses?

As you evaluate your variable expenses versus your fixed expenses, take some time to consider necessary items in your budget that fluctuate each month. It is more common for these items to be discretionary or areas where you can trim expenses with some changes to your habits. Other variable expenses are necessities, such as fuel to get you to and from work or surprise car repairs and ongoing maintenance fees.

And while you can reduce buying treats or fun snack items at the store, groceries are a variable expense that is necessary and challenging to project.

Utility bills are a necessary variable expense that you have some control over based on how much energy you consume. But you can’t control the ever-changing rates and service fees attached or the fact that your electricity bill will cost far more in July when you’re cooling your home than it does in January when you’re running the heat.

Altering variable expenses often requires that you change your lifestyle. For example, you might need to cook at home more and eat out or order takeout less often to reduce your budget and meet your goals.

Examples of Variable Expenses

As you work to manage your budget effectively, consider these variable expenses.

  • Car maintenance
  • Clothing and accessories
  • Eating out
  • Entertainment
  • Gas
  • Groceries
  • Hobbies
  • Home and property maintenance
  • Medical care
  • Personal care
  • Travel
  • Utilities

Managing Fixed and Variable Expenses

As you go through your budget and evaluate your fixed versus your variable expenses, you’ll want to look at each category to see where you have room for savings. Here’s a look at some ways you can cut expenses.

Tips for managing fixed expenses:

  • Refinance your mortgage or renegotiate your rent with your landlord.
  • Move to a less expensive living situation or rent out additional space you aren’t using.
  • Challenge your city’s assessment of your home value to get lower property taxes.
  • Shop around for your insurance to make sure you’re getting the best rates.
  • Consolidate debt to get lower loan payments at lower interest rates.
  • Eliminate unnecessary subscriptions, such as cable, apps and gym memberships; you can likely find a less expensive alternative if it’s a service you really need.
  • Call service companies, such as your internet service provider, to renegotiate rates.
  • Apply for scholarships to reduce tuition expenses.
  • Shop around for childcare alternatives or ask family members for help to reduce reliance on paid resources.

The effort required to lower fixed expenses is large but once you’ve lowered the expense, you’ll get to sit back and enjoy the fruits of your labor for months to come. Lowering variable expenses generally is easier from the standpoint that you simply choose to spend less. But that can be just as hard or even harder than renegotiating contracts or moving because it requires that you change your lifestyle.

Tips for managing variable expenses:

  • Cook meals at home and pack lunches when going to work, school or other activities.
  • Make less expensive dishes at home, such as opting for chicken instead of salmon.
  • Set strict clothes and accessory shopping budgets for yourself.
  • Travel less or choose less expensive destinations for a few years.
  • Compare prices and look for coupons when your car requires maintenance.
  • Use a gas comparison app to find the least expensive fuel near you.
  • Ensure all medical providers are in-network for your health insurance.
  • If you have a high-deductible plan and few medical expenses, consider paying cash for services in years you don’t anticipate hitting your deductible.
  • Consider reducing the number of massages you get and shopping for less expensive salon care or going an extra week or two between haircuts.
  • Look for less expensive hobbies or ways to reduce hobby expenses, such as only shopping during sales or using coupons.
  • Track expenses closely and know when you are nearing maximums for the month.

Effective Budgeting for All Types of Expenses

You shouldn’t so much see your budget as fixed versus variable costs. All expenses come together to create your total finances. You’ll need to view your budget as a whole to look for ways to reduce existing expenses and find areas where you can improve.

Frequently Asked Questions


Should I budget for fixed or variable expenses first?


Budgeting fixed expenses is a little easier because you know what to expect, and they are generally more necessary than variable expenses.


Is a cell phone bill a fixed or variable expense?


A cell phone bill is a fixed expense because you know how much it will cost each month and can depend on when it will come due.


How much of your income should go to fixed expenses?


Ideally, your fixed expenses should be no more than 50% of your total monthly budget. Then you’ll devote 30% to flexible spending and 20% toward saving and reaching your financial goals.

Rebekah Brately

About Rebekah Brately

Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.