3 Types of Expenses in a Budget: Fixed, Variable and Related

In order to feel REALLY in control of your money each month, you need to have a PLAN for that money. That’s where the budget comes in! This post is going to detail out the 3 types of expenses in a budget, and how to use them to create your very own budget for your boutique!

I know that word “budget” can kind of intimidate and freak some people out, but I’m going to try and simplify it  for you today.The important thing to remember is that a budget is not a “one-size-fits-all”. You cannot create a single budget and reuse it each and every month – it simply won’t work. Your sales (income) will fluctuate, and you don’t necessarily pay the same expenses each month. 

But, by following this post, you will start putting together a MASSIVE list of all the various expenses in your business that you will use to create your customized monthly budget each month.

So, without further ado, let’s dive in!

Fixed Expenses in a Budget

Perhaps the easiest types of items to include in your budget are the amounts that stay consistent from month to month, and the amount doesn’t change (or at least changes VERY little). These are going to include expenses such as your rent, recurring software subscriptions, memberships or dues, and monthly insurance payments. It can even include certain utility bills if the amount stays fairly consistent on a month-to-month basis.

Start creating your budget by listing out ALL of these recurring expenses that you pay every month, along with the amounts. 

Direct Expenses in a Budget

These are going to be the types of expenses in your budget that are directly related to the sales you make in that period. Expenses such as your cost of goods sold (COGS), credit card processing fees, and maybe even your outbound shipping expenses. In order to determine your budgeted amount for these categories, you’ll first need to determine your estimated sales/sales goals for the period.

For example, let’s say you want to have a $100,000 sales month (and that’s a realistic goal for you – not a pie in the sky number). For easy numbers sake, let’s say you have a 50% margin, so your COGS would be $50,000. On average, you also pay about 3% in credit card fees each month, so there’s a $3,000 expense. 

For brick-and-mortar stores, there may not be as much of a correlation between sales & outbound shipping costs. But, if you do most of your selling online, you’re likely shipping out most/all of your sales, so there could definitely be a direct correlation there. The best way to determine what that is is to look at historical months, compare your outbound shipping costs to your total sales for each month, and use that percentage to help predict shipping costs for future months.

Variable Expenses in a Budget

The final category is your variable expenses. To make this even simpler, I’m actually gonna break this category down into 3 subcategories: monthly variable, irregular, and discretionary. Let’s look at each of these in greater detail.

Monthly Variable Expenses 

These are the types of expenses that you may need to pay every month, but the amount is not always consistent. Things such as office & store supplies, payroll expenses, and advertising expenses. Since these amounts are not consistent, start by listing out all these different types of expenses, and then write down the typical RANGE of these expenses, and the average monthly amount. 

At the start of each month (or quarter, whatever period you’re budgeting for), you’ll review this list and use your experience & knowledge to determine what amount you need to budget for that period. Are your supplies running low so you’ll need to spend a little extra there? Is it one of those sneaky 3 payroll months? Do you have any big in-store events you want to make sure everyone knows about? These are some things to consider when setting your budget amounts for these types of variable expenses.

Irregular Expenses

These are going to include the things that you may only need to pay for annually or quarterly (or anywhere in between). Expenses such as annual insurance premiums, annually billed software subscriptions or memberships, trips to Market, staff bonuses, or bigger staff celebrations (like your Christmas party). You generally know the month that you need to pay for these things, so make a list of all of these irregular expenses, the month it’s due, and the amount that you need to budget for these expenses.

Discretionary Expenses

These are going to be the types of expenses that you have the most control over. This can also include budgeting for items that would be nice to have, such as certain store upgrades. If money was ever tight, these are generally the first items to get reduced or eliminated in a budget. So, make your list of all these types of expenses, the frequency in which you need (or want) to pay for them, and the amount you’ll need available to spend. 

If you’re wanting to make some larger purchases, this may include budgeting a portion of this expense every month, and setting those funds aside in a different bank account until you’ve saved enough to make the purchase. 

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Once you have your lists of all the different types of expenses, it’s time to compile them all into your monthly budget! I will tell you now…your first few budgets will be far from perfect. You will forget about certain expenses, and you may get discouraged if you keep going “over budget”. But, take it as a learning experience, and keep adding to your lists of the different expenses. Eventually, budgeting will become a naturall process for you, and it will help you feel even more confident and in control of your finances.

If you need help feeling more confident and in control of your finances, or maybe you want help determining a budget for your boutique, then I’d love for you to schedule a coffee chat consult with me! You can do so at https://www.findingfreedomfinancial.com/work-with-me/.

Here’s to finding your own version of freedom,

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