In the world of quick-fix strategies for making your finances work, variable expenses can feel like a breath of fresh air: you’re allowed to spend money on whatever suits you right now — but there is pressure later. In this article, we will discuss simple variable methods.
What is a Variable Expense?
A variable expense is a cost that changes due to a fluctuation in another factor. For example, your heating bill might be higher than usual during a freezing winter. Similarly, if you run your car for more than 10,000 miles per year – which is quite common for people with long commutes – your variable expenses (fuel) will also increase significantly.
Variable costs are just that – variable. They cannot be predicted in advance and can change dramatically at any time. The key to this type of expense is figuring out the costs that might be subject to change. The most basic way to do this is to examine the components of your monthly expenses. For example, you might expect your total grocery bill, including food and beverages, would fluctuate as your income increases.
Simple Variable Expense Methods
- Moving Expenses
The basic idea behind moving expenses is to put money into a fixed expense account, where you can spend it as you see fit. For example, one way to make moving expenses work is to pay your last month’s rent upfront and then save the rest of the money you need for your move. The catch with this method is that if something goes wrong, you will be stuck with a large (and growing) bill for which there is no way out.
- Fixed Expenses
You can save a lot of money with a fixed expense account. You can, for example, set aside all your expenses and don’t pay anything else until you have saved enough to cover those expenses. When you get paid, you can immediately use the money for fixed costs, such as utility bills and rent. This is also called a “raise account. “
- Cash and Non-Interest Bearing Account
Although this is a tempting method, it will cost you money in the form of possible interest. If you have your eye on a new television or sofa, put some money in an account where you can’t touch it until you’ve set aside enough for your purchase. It’s an excellent way to ensure you don’t spend more than you can afford.
- Non-Monetary System
You may be tempted to spend money on magazine subscriptions or a premium cable package. To control these expenses and others, try using an alternate form of payment, such as credits on your cell phone or frequent flyer miles. For example, if you can’t use up your airline miles by the end of the year, they will expire, and you will lose them forever.
- Schedule Expenses
Put aside money to cover specific expenses you know will occur in a particular month. For example, if you know you will buy a new television (or some other item), put money away for a specific account. This way, you don’t spend money before the month ends, and your TV doesn’t have to sit in the corner of your room for months.
There are many other ways to save money with variable expense accounts. Your goal is to save money. A good plan is to establish one or more of these accounts to have money for the things you want or need. The key is to find methods that work for your finances and stick with them.