Step 10: Identify your Variable Expenses

Step 10 of the 100 steps mission to financial independence: Identify your Variable Expenses
Step 10: Identify your Variable Expenses

In step 9 we looked at fixed expenses, but apart from these regular payments of a set amount, you most likely also have regular expenses which vary from one month to the next: your so called variable expenses. Indeed a variable expense generally:

  1. is an expense of a variable amount that you have some control over
  2. has a regular time interval
  3. is needed for day-to-day living
  4. you can cut down by making small lifestyle or behavioural changes.

An example of variable expenses include groceries: you need to eat for day-to-day living, they have a regular time interval, as you probably go to the supermarket several times a month but contrary to your fixed expenses, you have some control over the amount on your grocery bill.

Other variable expenses include your utilities bills: whereas you need water and electricity for the day-to-day running of your household, you can usually influence the amount on the bill by turning off appliances when not in use, regulating the temperature of your house more or by reducing the time you spend in the shower, to name just a few.

Even more than with fixed expenses, it can at times be difficult to decide whether a cost is variable or not, and this is where opinions vary more. Is your internet connection a necessity for daily living? One can argue that these days maybe it is. What about those new clothes that you bought? If you really needed them because you had nothing else to wear, then maybe they were indeed necessary and a variable expense. Yet if you bought new boots but already have 3 pairs, one can argue that they probably weren’t that necessary, and therefore weren’t a variable expense but a discretionary expense (more on that in step 11).

As you can see, determining whether something is a variable expense or not is slightly more up to your own opinion and situation, there is no good or bad answer, you just need to take some time to determine what makes most sense in your situation.

Step 10 – Identify your variable expenses – in detail

  • Make a list of all your fixed expenses that you can think of and by looking at your expenses register. Again depending on how long you have been tracking your expenses for and with how much detail, you might not have all categories included in there yet, so make sure to think outside of your log.
  • A few examples might include:
    • groceries
    • utilities (gas, water, electricity)
    • petrol and car repairs or maintenance
    • phone / internet
    • pets
    • clothes (?)
    • house maintenance costs
  • Once you’ve identified your variable expenses, you want to get a prediction of the average monthly costs for each one individually. The more data you have to look at, the easier this is to do and I recommend reviewing at least the last three months to get a good average. If your bills vary a lot (such as utility bills depending on the season), then you will need to look further back and find the bills of a full year in order to get a reliable amount. For example, if your electricity bill is $30 in summer (let’s say you live somewhere where it’s summer 6 months of the year) and $50 in winter (that’s the other 6 months), put down the average of $40 per month.

  • Create a new column and write the average (calculated or estimated) amount per month next to its category.

  • Continue this until you’ve got a monthly average for all of your variable expenses and you have a reliable picture of the monthly average for each.

We’ve got another two more expense categories to look at in the next steps, which are your discretionary and saving expenses, before we start working towards a plan of action to get our money to work for us, instead of the other way round.


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