What is a Variable Expenses?
Variable expenses are expenses that fluctuate based on the number of articles you write or the volume of patients you see. This can include the cost of your office lease, your car, and other common variable expenses.
The reason they fluctuate is that they depend on your level of activity—the more active you are as an independent contractor, the more bills you’ll pay each month.
If you’re self-employed or work as an independent contractor instead of being a salaried employee, it’s likely that this expenses make up a large chunk of your monthly income.
Even though it may feel like a constant expense, variable expense management is important if you want to grow your income as an independent contractor and stay financially secure.
You’ve just started a new job, and your first paycheck has just come in. Yay! But there’s also something a little worrying about this paycheck: You don’t know how much you’re earning.
Your first reaction might be to run to your bank manager and request a higher salary, or perhaps haggle with your employer for more benefits.
However, if you’re anything like most people, your first instinct will be to dig deeper into your finances. After all, the key to financial security is knowing how much of an impact different expenses have on your budget.
So what is a variable expenses? And how do you calculate yours? Read on to learn more about these peculiar expenses, as well as strategies that help keep them under control.
What is a Variable Expenses?
Simply put, a variable expenses is an expense that changes depending on the amount that you earn. For example, health insurance premiums are a variable expense for salaried employees, while employer-sponsored benefits are usually fixed.
Similarly, the monthly amount you pay for your mortgage will be different if you get a higher pay increase. These expenses can be very hard to track, as they’re not “fixed” like your fixed expenses like your mortgage payment or utilities.
Why Are Variable Expenses a Thing?
Variable expenses are a way to ensure that your income covers all of your expenses, including your housing, transportation, and food costs. The Federal Reserve Bank of San Francisco explains this as follows: “There are three basic goals of personal finance: to increase one’s wealth over time, to reduce one’s financial risk, and to pay off one’s debt.”
By tracking the amount you spend on your variable expenses, like your mortgage or insurance, you can make sure you’re paying enough to cover all of your expenses. The way you do this is by budgeting.
Budgeting is a way to plan your income and track your expenses to make sure your budgeting meets your financial goals. It’s not a perfect system, and it requires a lot of self-discipline, but it’s a great way to make sure that you’re not spending more than you’re earning.
Strategies to Manage Variable Expenses
Variable expenses can be hard to manage, so it’s important to have strategies in place to help you make sure that you’re not spending more than you’re earning. Here are a few strategies to help you manage variable expenses:
– Set a budget – Budgeting is a key way to ensure that you’re not spending more than you’re earning. This might require a lot of self-discipline at first, but it will be worth it when you have a stronger budget and are better able to plan for unexpected expenses.
– Make a list – Writing down your expenses will help you to track them more closely. You can also make an Excel list or a budgeting Excel list to make it even more visual.
– Shop around – Make sure that you’re not overpaying for insurance or for your mortgage. You might be able to find a cheaper policy or a better mortgage rate.
– Analyze your budget – Make sure that you’re sticking to your budget, and that you’re not spending more than you should be. While it’s good to stick to your budget, it can be helpful to analyze why you might be spending more than usual.
How to Calculate a Variable Expenses?
Different financial calculators will give you a different answer for your variable expenses. However, most of them will ask you for the amount you’re spending on your variable expenses, as well as your income. You can get these numbers from your pay stubs, or from your bank or credit card statements.
Once you have this information, you can use it to calculate your variable expenses. For example, let’s say that you’re paying $1,600 per month on your mortgage.
Let’s also say that your income is $3,000 per month and that you want to cover all of your expenses, including your housing, transportation, and food costs. In this case, your monthly mortgage is 25% of your annual income, so $1,600/$3,000 = 25%.
Bottom line
There’s no denying that tracking your expenses is a key part of financial security, but this task can be extremely complicated and overwhelming.
With that in mind, it’s a great idea to take a closer look at your variable expenses. What you’ll find is that, with a little bit of tracking, these expenses can be completely under your control.
