A variable cost, compared to a fixed cost, is something in your budget which will vary from month to month, sometimes widely. Consider your electric bill, which will typically be the lowest in the spring and fall, but summer and winter when you run the air conditioning or heater, it could be 30-50% more.

These are often a little harder to determine, and thus it is smart to get an average. If you only have a few months, work with that, but if you have a year’s worth of information, that is even better.

We’ve been tracking our expenses for years, and we can see when our costs go up and when they go down, and try to plan accordingly, but we also save money when the costs are cheaper, to pay for the up coming more expensive months.

Variable costs cover a lot of areas however, besides your utilities. Food and gas, will also be highly variable because of all of the outside price pressures.

However, some of their costs changes are also seasonal, so we plan ahead for them when we can by tracking what it costs month by month, and finding an average where possible.

“Surprise” expenditures also fit into variable costs. And these are things that shouldn’t surprise us, but are easy to over look because we don’t buy them all the time. I’m thinking about things like birthday gifts, holiday presents, etc. By setting aside a little bit each month, you’ll make sure you have the money ready for them when you need it.

A fixed cost item is something, usually in your budget, that you know will cost the same amount every month. This makes budgeting for these items easy because you know what to expect.

Examples of a fixed cost are your:

• rent/mortgage (although it may vary from year to year, month to month they tend to stay the same)
• cable
• internet
• car payment

Can these ever change… well yes. There are a few reasons one or more of these might change.

• If your mortgage is a variable rate mortgage, it might change. How much it can change, and how often are specified within your mortgage. After the housing crisis of 2007/2008, various rules went into place to limit how much of a change could occur – but it’s still good to know.
• Late fees – pay something late, or forget to pay, and you’ll often have a penalty.
• Mortgage and rent my change yearly based upon rising cost (rent) or rising escrow changes (year to year changes in taxes and/or insurance) which are often included in your mortgage. I’ve had my mortgage go up one year, and down the next due to escrow fees, however, they usually don’t vary too much.