So you’ve done the work and created a budget. Good job. While budgeting for your fixed bills is a breeze, it’s the expenses that fluctuate every month that can steer you off track. You pretty much know exactly how much your rent, utilities, and monthly bus pass are in a given month, but other expenses such as groceries, and going out can vary. By payday, it can often feel as if your money is pulling a disappearing act.
So how do you take into consideration expenses that change on the regular? Here are some ways you can budget for variable expenses.
Budgeting Variable Expenses
Separate out variable and fixed expenses
Give your budget room to breathe
Create a buffer fund
Trust the Process
It’s a lot easier to track and tweak your budget for variable expenses if they are separated out from your fixed expenses. Unless you undergo lifestyle inflation, where you buy a car or move into a more spacious apartment, for the most part you won’t need to check on your fixed expenses account very often.
First up, investigate how much you’ve spent on your variable expenses over the past few months. If you have an account with us, try using reports. Next, create separate Goals for each expense—both fixed and variable—in your Simple account. For your fixed expenses, it’s easy – set a Goal for the exact amount you need. For your variable expenses, create a Goal that’s closer to the upper end of your spending.
If you find one of the variable expenses is firming up—simply switch your goal and budget up to reflect this. Conversely, if you’re a little embarrassed about throwing down frequent irregular amounts on certain things and overshooting your variable expense coal, don’t be; mistakes happen to the best. Use your new knowledge as an opportunity to determine whether spending so much on X is worth it to you or not.
If you’ve found it frustrating to create a zero-sum budget, where you essentially use last month’s income to pay for this month’s bills, and every incoming dollar is assigned a task, you might want to give your budget some breathing room.
If you can swing it, try adding a little bit of padding. Estimate roughly how much your variable expenses are each month, then add a small amount on top. If you don't have an exact number, don't sweat it. You can always make changes along the way to adapt to changes in your spending habits.
A buffer fund is essential to staying afloat financially. Unlike an emergency fund, which involves putting a large sum of money aside for large and unexpected expenses, a buffer fund is something you can feel comfortable pulling from if you find yourself a little short on cash. When creating your buffer fund, don't stress about how much you’re putting aside; start by saving what you can comfortably afford.
While you’re at it, you might want to firm up what exactly constitutes a situation where it’s okay for you to use your buffer fund perhaps a blown-out tire that requires an immediate repair, or a short flight home for a family visit or funeral. Meanwhile, put savings towards major purchases and goals in a separate fund altogether. By spending some time coming up with a set of rules for yourself, it will help deter you from dipping into your savings preemptively.
Learning to understand your variable expenses can take time, and will involve trial and error along the way. Remember it’s about having a system and a process – once you start budgeting for variable expenses, you won’t have to stress about overdoing it with your spending.
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