How to Plan for Fixed, Discretionary, and Variable Items in Your Family Budget

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Although a minority of Americans set – and follow – a household budget, there are numerous benefits to planning and managing your spending. In fact, sticking to a realistic budget can significantly increase your financial security while chipping away at debt and building wealth. 

Whether you are a budgeting novice or you’ve been creating family budgets for more than a decade, it’s helpful to periodically reevaluate your spending and saving habits, particularly in three main categories: 

  • Fixed expenses
  • Variable expenses
  • Discretionary expenses

Here, we will provide a brief overview of these three categories and, hopefully, inspire you to take a second look at your own budgeting patterns.

Fixed expenses

In short, fixed expenses are essential, ongoing costs that arise monthly, quarterly, annually, or otherwise regularly. Some examples of fixed expenses include:

  • Insurance premiums
  • Rent or mortgage payments
  • HOA fees
  • Health, life, disability, car, or personal property insurance
  • Cell phone plans
  • Parking or transportation fees
  • Property taxes (if you own property)
  • Debt payments
  • Daycare, school, or college tuition costs

Additionally, saving for retirement, padding an emergency fund, contributing to a 529 account, or working toward other financial goals can be deemed a “fixed” line item in your budget. 

Fixed expenses are non-negotiables in you budget. If you don’t have the cash to cover them, you are in trouble. To ensure you have enough to cover these expenses, you will need to ensure you have adequate cashflow through your monthly paycheck. If you are coming up short, then you have options.

For instance, if you don’t make enough to cover your fixed expenses, consider whether you can either earn more money OR slash some of your costs. Pick up a side hustle to earn some extra cash. Alternatively, contact your insurance providers, cell phone servicers, loan officers, or mortgage company to see if there are ways to restructure your payments to make your monthly fees more manageable. Some service providers will be willing to work with you to reduce your fees, interest payments, or payment timelines. 

If you are knee-deep in debt, some of the best debt consolidation programs out there can help you reduce your loan payments or compress your payoff timeline so that you can shed your debt burden and open up more of your monthly budget to handle fixed expenses. Additionally, it is wise to keep credit card debt low if you are struggling to keep up with your essential bills.

Variable expenses

Like fixed expenses, variable expenses are still necessary costs, but the exact amount you pay is fluid based upon your needs each month. Some examples of variable expenses are:

  • Utility bills
  • Groceries
  • Transportation and gas expenses
  • Vehicle maintenance fees
  • Clothing 
  • Payments on variable-interest-rate loans

While it can be difficult to plan for variable expenses, their benefit is that they are fairly controllable. For instance, you may need clothing for work, but you can choose to shop second-hand instead of buying everything from a high-end designer shop.  

Planning for variable line items in your budget will depend largely upon the season. For example, your electricity bill will likely be higher in the summer months when you are using AC. You may have a higher clothing budget in the late summer when you are shopping for back-to-school clothing for your kids. And your gift budget will likely be much larger in December than in the middle of the summer. Working variable items into your budget, then, requires quite a bit of planning ahead. 

Discretionary expenses

Finally, discretionary expenses are fun, but largely unnecessary, items in your budget. This is also the category that can be easily slashed if you need to increase your savings. Some examples of discretionary items (i.e., “wants” versus “needs”) are:

  • Entertainment
  • Dining out
  • Travel 
  • Games, toys for kids, and nonessential clothing items
  • Streaming TV subscriptions
  • A gym membership 
  • Personal care items

Some items on this list may seem arguable. For example, you may think that streaming TV services are essential if you have kids and need a way to entertain them. However, there are still ways to be fiscally responsible even with some of these extras. For example, you can probably benefit from one streaming service – you likely do not need five. Similarly, a basic cell phone plan is arguably essential, but an unlimited data plan probably is not.

Tips for managing fixed, variable, and discretionary expenses

Take some time to sort through your credit card or bank statements and categorize your expenses as fixed, variable, or discretionary. Take stock of each line item. Are you overspending? Or are your expenditures appropriate for your family’s needs? Are there areas you can trim? What costs have to remain the same, and which ones can you adjust? If your spending exceeds your income, how can you either slash your expenses or boost your earnings?

Start with your fixed expenses, as these are generally the easiest to update (given that there is often so little margin for change). Think about ways to trim. Can you refinance your mortgage to get a better rate? Can you renegotiate your cell phone bill or insurance premiums? If you are paying for private school tuition, could you consider free public education for a while instead? 

Next, take a look at your variable expenses. Reducing them should be simpler. For example, if you want to leave a smaller footprint, try unplugging appliances when they are not in use, keeping your AC at a higher setting, or turning off lights when you are not in the room. These changes may seem insignificant, but they can make a big difference in the long run.

Finally, turn your attention to your discretionary expenses. This is the easiest place to cut. One option is the 50-30-20 plan, which involves allocating your budget in the following way:

  • 50 percent to fixed and variable expenses
  • 30 percent to discretionary items
  • 20 percent to bulking up your savings or chipping away at your debt

In some cases, you can opt to include debt and savings into the fixed expenses category, which would make your first percentage considerably higher.

No matter which approach you take, the ideal is to ensure that your total expenses do not exceed your income. This is the best way to build wealth while paying down debt. If you need assistance setting a budget, reach out to a financial advisor or credit agency for guidance.