Creating a Spending Plan: Don’t Forget Your Variable Expenses

by Miranda Marquit · 4 comments


Every so often, I stop and take stock of my financial situation by double-checking where my money is going. I don’t have an exact spending plan down on paper; my style involves making sure all the important stuff (mortgage payments, Roth IRA contributions, insurance, emergency fund, groceries, bills, etc.) is covered, and then I pretty much spend until the rest of the money is gone for the month.

But that doesn’t mean I don’t review my expenses occasionally. I also look at my spending and decide whether or not I could increase certain contributions. If I’m going to do this, it means that I need to re-evaluate my monthly income and spending, and make sure I have the resources available to change things up a bit. Recently, I wanted to bring my Roth IRA contributions up to the max, so I had to look at what was happening with my spending.

Upon first review, I thought everything was great. But, when my new, higher contribution came out of the account the following month, I was dismayed that there didn’t seem to be quite as much left over as I thought there should be.

The culprit? A variable expense.

Don’t Forget Variable Expenses

We all have variable expenses. Rather than being fixed, like your car payment, the cost of variable expenses changes each month. This can be the variation in what you spend on groceries, as well as the items that you only pay periodically. In my case, the variable expense I forgot to plan for was an insurance premium payment automatically deducted from my bank account once a year.

When you’re planning your budget, it’s important to account for these variable expenses. Look back through the last three to six months’ worth of spending in order to get an idea of where you are. If last month’s electric bill was the lowest in the year, you don’t want to base your spending plan off that less-than-typical number. Instead, add up what you spent on electricity over the last six months and then average it out. That will give you a far more accurate estimate of what you pay regularly for your utilities.

Don’t forget periodic expenses, either. Many insurance policies bill every six months, or every year, rather than monthly. Make sure you account for that by looking back through your spending. You can check your bank account or use personal finance software to help you keep track of where the money is going and how regular the expenses are.

As you put together your spending plan/budget, don’t forget about the variable expenses. It’s tempting to just look at your last month of income and expenses, but it’s rarely enough to give you a true idea of your financial picture. By checking back through three to six months of expenses and making a list of all your periodic expenses, you can more effectively plan your financial future.

How do you account for variable expenses? 

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  • mar says:

    the retirement that is talked about is 70. if you extend you have more in retirement. Well, that is true. The rest is what they do not tell you, Your medicare supplement is higher, your illnesses are more forthcoming. (now the difference is) at 65 you live a great retirement when you get sick possibly at 70 odds you will (just like me) medical bills far exceed the difference in retirement benefits from 65 to 70.
    My suggestion is: Retire at 62 take the reduced. you have your wife and yourself and for the few great healthy lives you have you can enjoy them . because like me, when that illness grabs you.. you are either bed ridden, hospitalized (as I am 2-3 times a year) cannot get around like old times. and the enjoyment is a little less pain in a day makes that day tolerable.
    So, again be like the ceo’s go young (they get 100’s of millions of our stock money) to retire. and they go go go.. we have to select select and make our buck bang….. but,my wife and I enjoyed the 30 day cruise from los angeles to Hawaii, gaum, china, japan……….we did it on a balcony for 1799 each… that was get a bang for the dollar……….. airfare was 800…….cathay………….. great airline. that is how you enjoy your retirement.. you have to be selective and know where it is going and you can live off just social security and a little retirement nest egg..

  • AJ says:


    Thats a great idea! I do something similar but hadn’t formally thought of it that way. I think I will now! -AJ

  • Alex in Virginia says:

    For any expenses that accrue (such as insurance payments, topping off the heating oil tank, quarterly tax payments, etc), what I’ve done is added them all up to come up with an annual total for “accruing expenses”, divided it by 12 to come up with a monthly figure, and then set aside that figure each month in what I call a checking account “subaccount”. (To make it easier, you could just set up a separate checking account for this.)

    When one of those expenses comes due, I pay it out of the accruing expenses subaccount. Since I started doing that, I no longer get blindsided by a variable expense. If the amount of the expense changes — like due to an insurance rate increase — I just adjust my monthly accruing expense setaside.

    It works. 🙂

  • AJ says:

    The way to avoid missing occasional or variable expenses is to go back one full year when updating the budget. I also, do not really watch every dime like I did when I had a large credit card bill and low wages. Currently, I do review the annual expenses when there is a major change in income or expenses and when considering taking on a major credit purchase or something needing significant maintenance costs and annually right after completing taxes. Since my budget is no longer so tight, I’m in paying off the mortgage mode. To make sure I don’t come up short on the monthly budget it looks something like below.

    Extra amount to give toward mortgage:

    Carry over in checking account 300

    Monthly base income (not including overtime) 1000

    Monthly average expenses. (take annual expenses (including occasional)and divide by 12) -600

    Extra amount to leave in checking account for minor emergencies

    Balance that can be paid to mortgage 500

    Of course this assuming the emergency fund is fully funded, otherwise the balance would go to that prior to paying off the mortgage.

    This is just what works for me. I’ve tried other methods and depending on what was going on in my financial and employment life, have used other methods to get through the early rough spots. For instance, would use a similar method but with weekly or even daily allowances when money was very tight.

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