Fixed expenses cost the same amount each month, whereas variable expenses vary in amount from month to month. Fixed expenses cannot be changed easily. Most variable expenses represent discretionary spending, but some variable expenses also represent necessities.
A mortgage, health insurance and car insurance are examples of fixed expenses. Despite the name "fixed expenses," these expenses are not necessarily set in stone. Someone who wants to start saving should look for ways to alter fixed expenses. Since fixed expenses normally represent the largest percentage of a budget, the potential savings in this category can be rather substantial. Cutting back on a fixed expense, such as a cell-phone plan or cable TV package, can reap financial benefits for several months or years.
Variable expenses represent choices such as eating out for lunch or dinner each day, buying something new, going out for drinks with friends or taking a vacation. These things are considered variable because the amount spent on them varies from month to month. However, while the above examples represent discretionary spending, some variable expenses can also include necessities. For example, most people spend variable amounts of money each month on groceries, gasoline or on necessary repairs or maintenance for a vehicle, all of which can be considered necessities. Variable costs are usually the first expenses to cut back on when one needs to save money.