Define Budget Categories for Periodic, Variable, and Fixed Monthly Expenses

They could be expenses that come up annually or at some other interval. Periodic expenses sometimes sneak up on us because they occur so infrequently that we don’t have them on our radar. To build an effective emergency fund, it’s crucial to understand your essential expenses. Fixed and variable expenses form the basis of what you would need to cover in an emergency, while periodic expenses remind you to prepare for unexpected costs.

• Once you have the right amount, you simply add them to your budget like any other expense.
• Instead of scrambling for funds when a quarterly tax payment comes due, financial managers can implement accrual approaches by setting aside small amounts monthly.
• Small businesses and self-employed professionals need to pay close attention to setting aside the right amounts throughout each quarter.
• This way, when the payment is due, you’ll have the required sum handy, and you won’t have to compromise other budget areas.

#1 – Fixed Cost

• For those of you with a mortgage, that might mean selling your house and buying a new home with a cheaper monthly payment.
• The due dates are mainly consistent, normally varying by little more than one or two days from month to month.
• If your expenses are properly tagged and classified, you can automatically exclude recurring and one-off costs from your expense report before diving in.
• By proactively managing both fixed and variable expenses, your business can improve its profitability and ensure long-term financial stability.
• To make the budgeting process easier, estimate the yearly cost for each utility, and divide that amount by 12.

Once you’ve identified all of your periodic expenses, How to Run Payroll for Restaurants you’ll need to estimate the annual cost of each one. These include food, utilities, entertainment, and transportation costs. A variable expense occurs semi-regularly and the cost can changes depending on a number of factors. For example, you don’t pay the same amount every time you shop for groceries, so the cost is variable. This way, you’ll have the necessary funds set aside when a periodic expense comes due. Any cost directly related to running your business – whether incurred by you, your employees, or the company itself – should be recorded as a business expense.

Calculate annual and monthly costs

While you may only have to pay your auto registration once per year, you can plan for the payment all year long so you are not surprised when the time comes to make that payment. On the other bookkeeping hand, costs of goods sold related to product costs are expensed on the income statement when the inventory is sold. Everybody’s financial statements look different, and there’s no shame in whatever path you’re on. When you create a budget with your net income and debt payments, you can start to plan the best means of spending for you. Now we need to calculate your recurring and periodic expenses per paycheck.

Understanding the Three Major Types of Expenses

• Any expense that isn’t fixed and isn’t accounted for in your variable category is periodic and goes in the pile.
• This is why I prefer the term recurring vs. fixed as you do have control over the ‘fixed’ amount you pay each month.
• Unlike fixed expenses, these costs can change depending on your lifestyle, usage, or consumption patterns.
• 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 the eight most common periodic expenses businesses encounter.

Period costs help the management understand the burden of cost that a firm is facing irrespective of whether the company is working or not, earning any profit or not. Moreover, it helps authorities identify the irrelevant unavoidable costs that will always consider reaching the breakeven point. See how to streamline processes, enforce policies, and gain real-time periodic expenses visibility into business spending. Once periodic expense invoices arrive, Brex’s automated bill pay transforms a manual, error-prone process into an efficient workflow. Invoices can be forwarded, emailed, or uploaded to Brex and Brex AI then captures each itemized detail, including due date, vendor, and amount.

These bills typically come in once a month and can range from a few hundred dollars to more than one thousand depending on your location and usage. It’s important to be aware of these bills so that you can budget accordingly. You may also want to consider energy-saving measures such as investing in energy-efficient appliances or switching to LED lighting in order to save money over time. Once everything is gathered, total up the cost of every expense and divide by 12. This is the amount you need to save every month in order to cover your periodic expenses. The thing about periodic expenses, is they tend to be necessary, which makes them hard to cut from your budget.

Tracking variable expenses can be done using budgeting apps, spreadsheets, or a simple expense journal. Keeping receipts and monitoring bank statements can also help you track spending trends. First, you can review your bank and credit card statements to see how much you’ve spent during the past few years. While many periodic costs do fluctuate over time, this strategy can give you a solid ballpark figure to work with initially. All of the costs above are somewhat predictable in nature, but they aren’t expenses you deal with every month.