Ask Crystal: How do I budget for variable costs?

Every Thursday in 2025, I’ll be answering a question about money and/or budgeting. If you have a question you’d like me to answer in a future post, please post it here.

Today’s question is about variable costs from Lori:

“How can I budget for variable expenses and stick to my budget?” – Lori

One of the biggest obstacles I hear from women when it comes to budgeting is this: “I can’t figure out how to budget for variable costs!” Variable expenses are those expenses that don’t fit neatly into the monthly box—things like gifts, car maintenance, medical bills. Costs vary and there is no set method for when you will pay off the loan or need to buy the gift.

We have a whole page on our free worksheet for variable expenses – because they can be so many and I don’t want you to forget any of them! Why? Because if you don’t plan ahead for variable expenses, they will just pop up and can throw your budget off track – and possibly make you feel like it’s impossible to stick to a budget at all.

The good news is, budgeting for variable expenses doesn’t have to feel like herding cats. With a few simple tricks and a change of perspective, you can not only create a realistic budget but also stick to it—and maybe even enjoy the process!

Step 1: Identify and List Your Variable Costs

The first step to budgeting for variable costs is knowing what they are. Look at the last 6-12 months of your spending. Put together your bank statements and credit card bills, and make a list of any expenses that don’t show up every month but do happen on a regular basis.

Some common categories include:

• Gifts (birthdays, weddings, holidays)
• Car maintenance (oil change, maintenance)
• Medical expenses (co-pays, and prescriptions)
• Annual subscription or membership
• Home maintenance (repairs, periodic maintenance)
• Clothes
• Activities for your children
• Visiting/visiting with friends

Download our free budgeting worksheets and head over to the Variable Expenses page to help you think about all the different categories you might spend money on occasionally or regularly that aren’t fixed expenses. Once you’ve identified your variable costs, break them down into categories. This will give you a clear picture of where your money tends to go.

Step 2: Calculate the average for each section

Now that you have your list, it’s time to figure out how much you should budget for each category. Since these costs vary, you won’t have an exact number, but you can calculate an estimate based on past spending.

For example, if you spent $600 on car maintenance in the past year, divide that by 12 months. You will receive $50, which means you should aim to set aside $50 each month for car repairs.

Use the Variable Costs page on our free budgeting worksheets and enter the amount you need/want to budget for each category. You may find that some categories are unusual—like gifts, which tend to increase around the holidays. In those cases, divide the annual cost amount and spread it evenly over the year.

This is one of the keys to financial success! You should plan ahead for upcoming expenses, even if they are not regular line items in your budget. And don’t just plan ahead, set aside money, too!

Step 3: Set Up Sinking Funds

Once you’ve calculated how much you should set aside for each category, create sinking funds. A sinking fund is simply a collection of money that you set aside for certain expenses. Think of it as a small savings account within your budget.

We consider our sinking funds as hard earned money, even though we put them aside. It is set aside and reserved for future expenses, therefore, it should never be touched.

You can set up sinking funds in several ways:

1. Money envelopes: If you prefer to work with cash, you can create labeled envelopes for each category and add money to each payday. This can work well in budget areas such as clothing or gifts. We did this for years and it worked very well. When we needed to buy clothes or a gift, we just brought that envelope to the store and that was the amount we had to spend (and I would recommend not spending it all because it’s always nice to have some money in the envelopes. and waiting to be used in case of need or need!)
2. Different Savings Accounts: Some banks allow you to create multiple small savings accounts, which is a great way to keep track of your various sinking funds digitally.
3. Budgeting apps: If you like the simplicity of apps, many tools (like YNAB or EveryDollar) have built-in features to track sinking funds. After using money envelopes for years, we switched to using YouNeedaBudget. All of our money in our bank accounts is calculated by this system. Instead of looking at how much we have in our bank account, we look at how much we have saved in each category if we need to spend money on something like a gift or car maintenance, etc.

Sinking funds prevent the “Hey, where’s the money going to come from?” panic when variable costs appear. Instead, you’ll have plenty of cash ready and waiting when it’s time to use it.

Step 4: Build Flexibility into Your Budget

Here’s the thing about variable costs: they change. That means that no matter how carefully you plan, you will still have months when things don’t go as expected. That’s right! The key to sticking to a budget is giving yourself permission to adjust when life happens.

To build flexibility into your budget, try these tips:

• Create a Mixed Category: Set aside a small amount each month for unexpected expenses that don’t fit into any particular category. Jesse and I have a budgeted amount of money for us to hit. This is money we can spend on anything we like. Sometimes, we’ll use it to pay for variable expenses – like lunch with a friend, a new outfit, or a gift for someone else.
• Transfer of Unused Funds: If you don’t use all the money in the sinking fund one month, always roll it over to the next. This helps build a buffer for months when costs are high. Sometimes, we’ll have sinking funds (like car repairs) that we don’t touch for months at a time. It just builds and goes up and if something happens, the money is ready!
• Check back often: Life changes, and so do your expenses. Make it a habit to review your budget every month and adjust your sinking fund contributions as needed. We’ve had times where we’ve “possessed Peter to pay Paul” – meaning we’ve had a lot of money in one category and didn’t spend a lot of money there so we’ll transfer it to another. empty section. This is good to do from time to time. However, I recommend that you adjust the sections if you do this often.

Remember: Give Yourself Kindness

No budget is perfect, and no one sticks to their budget perfectly 100% of the time. There will be months when you overspend or forget about expenses. If that happens, don’t throw in the towel. Instead, give yourself grace, learn from it, and keep moving forward.

If you have a budget problem, instead of giving up, ask yourself, “What can I learn from this so that I don’t make the same mistake again?” Then ask, “What can I do right now to help myself get on top of this and get back to a strong budget again?”

I am here to congratulate you as you want to be more intentional with your finances. As always, remember that budgeting is an ongoing process, not a one-time event. But by planning ahead by using a flexible spending budget, you’ll set yourself up for much less stress and strain in the future, even if it means you don’t have as much breathing room in your budget right now. It will be so worth it when those unexpected variable expenses come up and you have money set aside and waiting!

PS Need step-by-step help with budgeting? Check out my brand new resource: One Hour Budget. A simple, practical guide to get you through the process of setting up a sensible budget in just 60 minutes!

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