Latest / Budgeting for Beginners with Fexingo: Cash Envelopes, Apps, and Simple Money Tracking / How to Budget for Variable Expenses That Change Every Month
Transcript
- Lucas: So Luna, I was looking at my own budget spreadsheet this morning, and it hit me — the categories that always give people trouble aren't the fixed ones. Rent, car payment, Netflix — those are set. It's the stuff that changes every single month that wrecks a budget. Luna: You mean like groceries, gas, utilities? Those are the ones I always struggle to plan for. Lucas: Exactly. And we talk a lot about zero-based budgeting and cash envelopes on this show, but those methods assume your spending is pretty predictable. The reality is, your electric bill in July can be double what it was in April, and your grocery bill spikes around the holidays. So what do you do? Luna: I remember we did an episode on irregular income, but this is different. This is irregular spending. And it feels like it's everywhere. Lucas: Right. So today, let's dig into variable expenses — the ones that change month to month. And I want to give you a specific method that takes the guesswork out of them. It's called the average plus buffer approach. Luna: Average plus buffer. I like the sound of that. So how does it work? Lucas: First, you look back at the last twelve months for each variable category — groceries, gas, electricity, water, even dining out if that fluctuates. You add up all twelve and divide by twelve to get your monthly average. Then you add a buffer on top, say ten to fifteen percent, and that becomes your monthly budget for that category. Luna: So instead of setting a random number like 'I'll spend three hundred on groceries this month,' you're using your actual history. Lucas: Exactly. And the buffer covers the months when you go over average. Because let's be honest, some months you're going to host Thanksgiving, or your car decides to guzzle more gas. Luna: And if you don't use the buffer, it rolls over to the next month, right? Lucas: That's the idea. You treat it like a mini emergency fund for that specific category. You keep it in a separate envelope or a separate savings bucket, so it's there when you need it. And when you have a high month, you dip into it, and then you replenish it over the next few months. Luna: That makes sense. But how do you actually decide what the buffer should be? Is ten percent enough for everything? Lucas: Good question. It depends on how volatile the category is. For something like groceries, ten percent might be plenty because your spending is relatively stable. But for utilities, especially if you live somewhere with extreme seasons, the swing can be huge. I did a quick example with my own electric bill — my average is around a hundred and ten dollars a month, but in August it hit two hundred and twenty. Luna: Whoa, double. So ten percent wouldn't even come close to covering that spike. Lucas: No, it wouldn't. That's why I recommend categorizing your variable expenses into two groups: predictable-ish and wildcard. Predictable-ish ones like groceries and gas get a ten percent buffer. Wildcards like utilities, car repairs, and medical copays get a bigger buffer, maybe twenty-five percent, or you set aside a fixed amount each month into a sinking fund. Luna: I love the idea of a sinking fund for utilities. So you're basically smoothing out the high and low months. Lucas: Yes. You take your annual total — say your electricity costs twelve hundred dollars a year — and you divide by twelve, so you put a hundred dollars a month into a separate account. Then when the summer bill comes, you pay it from that fund, not from your regular checking account. It's like an even payment plan, but you're managing it yourself. Luna: That's brilliant. And it works for other seasonal stuff too, like car insurance if you pay every six months, or even holiday gifts. Lucas: Exactly. And the beauty is, once you have these sinking funds, your monthly budget becomes way more predictable. You're not panicking when the bill doubles because you already set the money aside. Luna: But what about the psychological side? I mean, seeing a hundred dollars leave your checking account every month for something you're not using yet — that takes some getting used to. Lucas: It does. But I think it's actually a relief. You're not pretending the cost doesn't exist. You're acknowledging that your electricity bill is a yearly expense, not a monthly one. And that changes how you think about your budget. Luna: I think that's a really helpful reframe. Because when I think about my budget, I used to just allocate for the current month. But this makes me plan for the whole year. Lucas: And that's the difference between budgeting that feels like a constant firefight and budgeting that actually gives you some calm. Look, if today's approach to smoothing out those variable costs was useful to you, the way we keep these conversations ad-free is through listener support. If you'd like to help, you can buy me a coffee at buy me a coffee dot com slash fexingo. It's a simple way to keep this show going. Luna: Yeah, and every little bit genuinely helps us keep making episodes like this one. So if you've gotten something out of the show, that link is there for you. Lucas: Alright, so back to variable expenses. Let's talk about how to actually track them, because knowing your average is one thing, but you need the data. Luna: How do you recommend people track? Is a spreadsheet enough, or do they need an app? Lucas: Honestly, it doesn't matter. What matters is consistency. You can use a simple spreadsheet with columns for each category and enter the amounts each month. Or you can use a budgeting app that automatically categorizes your transactions. The key is to have at least six months of data, ideally twelve, to get a reliable average. Luna: I know some people are intimidated by apps, but if you're already banking online, most banks have spending analysis tools built in. Lucas: That's a great point. You don't need a fancy app. Your bank might already show you your monthly spending by category. Just export that to a spreadsheet and you're halfway there. Luna: And what about cash envelopes? Do they still work for variable expenses? Lucas: They can, but you have to be careful. Cash envelopes work well for categories you can control, like dining out or entertainment. For variable expenses like utilities, you can't pay with cash as easily. So I'd say use envelopes for the discretionary stuff and use a separate savings account for the fixed-ish variable stuff. Luna: So maybe two envelopes for groceries and gas, and a savings bucket for utilities? Lucas: Yeah, that's a solid system. The point is to separate the money so you don't accidentally spend it. If your utility fund is in your main checking account, it's too tempting to use it for something else. Luna: Good point. I also think it helps to review your averages every few months, because prices change. Gas was way different a year ago. Lucas: Absolutely. I'd recommend a quick check every quarter. Just update your spreadsheet with the new month and recalculate the average. It takes five minutes and keeps your budget honest. Luna: And if you have a month where you go way over, like a car repair, do you just dip into the buffer and move on? Lucas: That's the idea. But if the repair was huge, you might need to adjust your buffer or set up a separate sinking fund for car maintenance. The average plus buffer method is flexible — you can customize it to your own spending patterns. Luna: I think the key takeaway is that variable expenses don't have to be a source of stress. With a little planning and a buffer, they become just another part of the budget. Lucas: Exactly. And the next time your electricity bill surprises you, you'll be ready. So, to recap: look at your last twelve months, calculate the average, add a buffer, and set aside money each month into a sinking fund for the big swings. That's the average plus buffer approach. Luna: And if you're just starting out, don't worry about getting it perfect. Just start tracking and adjust as you go. Lucas: Right. The goal is progress, not perfection. And remember, the data is your friend. The more you know about your spending, the easier it is to plan.