The 3 Types of Expenses: Fixed, Periodic, and Variable Pay Rent On Your Own Schedule

Just as the name says these are your expenses that will vary month-to-month and are probably the largest spending category. Variable expenses include such things as groceries gas for your vehicle utilities entertainment expenses and clothing. By keeping track of these expenses over time you can get a better idea of how much you’re spending each month and retained earnings plan accordingly.

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They aren’t as noticeable as daily expenses like groceries or fuel, but over a period, they collectively pose a significant impact on personal finances. Here are some typical categories that you can adapt to your own situation. Avoid catch-all categories like “shopping” and “miscellaneous” or use them very sparingly. However, putting together a budget all at once can be intimidating, so we’ll do this one step a time.

The Importance of Variable Expenses

Once you’ve identified your periodic expenses, total them up for the year. Develop a payment plan to pay off your credit cards fully and on time. This will help you avoid late fees and high-interest charges that can quickly accumulate. While all variable costs can be considered part of marginal costs, they are not the same. Variable costs are expenses that change based on production levels; for instance, as you produce more items, your costs for raw materials increase.

What is the best way to account for periodic expenses?

Mainly, this is to ensure you have enough money available should the cost of the good or service you need increase suddenly. Supply shortages and inflation can all alter pricing with surprising speed, so adding the extra amount gives you a workable cushion. Once you’ve identified all of your periodic expenses, you’ll need to estimate the annual cost of each one. The simplest way to plan for a year’s worth of periodic expenses is to do a thorough inventory of all the periodic expenses you incurred last year. periodic expenses Any expense that isn’t fixed and isn’t accounted for in your variable category is periodic and goes in the pile.

• This insight can drive strategic decisions about expansion and efficiency.
• Below is a break down of subject weightings in the FMVA® financial analyst program.
• These are predictable payments that you are committed to, making them easy to plan for in your budget.
• CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation.
• Everybody’s financial statements look different, and there’s no shame in whatever path you’re on.

Variable expenses are the easiest to control when it comes to your financial life. Finally, if you want to reduce the amount you spend on discretionary expenses like recreation, then don’t buy that pair of shoes you don’t really need. Mastering your expenses empowers you to make informed operational decisions. Whether cutting costs, investing in new projects, or adjusting pricing, having a clear picture of your expenses ensures that your decisions are data-driven and strategic. Instead of hiring multiple managers, consider having a few well-qualified individuals oversee larger teams.

Leverage expense tracking software to simplify tracking

Examples include property taxes, insurance premiums, and annual professional dues. These expenses follow predictable schedules, but their infrequent nature can create budget challenges when they arrive. Determining how much you spent for variable periodic expenses will give you an idea of how much money you should set aside for such expenses in the future.

Period costs definition

This task, while it might seem straightforward, requires a meticulous examination of your expenditure patterns. Fixed expenses are the Bookkeeping vs. Accounting expenses that don’t change from month to month. You also know the dates that these expenses will be due or will be automatically taken out of your checking account. Fixed costs remain constant for a given tenure, irrespective of the level of output.