What Are Variable and Fixed Expenses? How Can I Budget for Them in Singapore?

Effective financial planning begins with a clear understanding of your spending habits. In Singapore, like anywhere else, expenses fall into two main categories: variable and fixed. Recognising the distinction between these two types of costs is crucial for creating a realistic budget, achieving your savings goals, and making informed lifestyle choices.

This guide will provide a comprehensive overview of variable and fixed expenses in Singapore, equipping you with the knowledge and tools to budget effectively and manage your finances with confidence.

Variable expenses explained

What are variable expenses?

Variable expenses are costs that change depending on how much you consume or use. Unlike fixed expenses, which remain consistent, variable expenses can fluctuate from month to month. These expenses are often more within your control, and by tracking and adjusting your habits, you can effectively manage them through proper budgeting.

Variable expenses examples

Here are some common variable expense categories relevant to Singapore, highlighting how they can fluctuate:

• Transport: Costs associated with getting around, including MRT and bus fares, taxi or ride-hailing services like Grab and Gojek, and petrol expenses. These can vary based on your commuting frequency and mode of transport.

• Dining: Spending on food and drinks, ranging from affordable hawker centre meals to restaurant dining, and the cost of food delivery services. Your choices and frequency of dining out significantly impact this category.

• Utilities: Essential household expenses like electricity (which can vary depending on your Open Electricity Market plan and energy consumption) and water usage.

• Shopping: Spending on items like clothes, gadgets, and online shopping deals. This category is highly discretionary and can be controlled through conscious purchasing decisions.

• Entertainment: Costs related to leisure activities, such as movie tickets, gym memberships, streaming services like Netflix, concerts, and nightclub visits. These can fluctuate based on your social activities and entertainment preferences.

• Travel: Expenses related to vacations and trips, including airfare, hotel stays, and travel insurance. These costs can vary significantly depending on your travel frequency and destination.

It's important to note that even within these categories, costs can vary due to price changes. For example, public transport fares can increase periodically, as seen with the recent announcement that adult passengers will need to pay 10 cents more for each train and bus ride from Dec 28, 2024. Staying informed about these changes is crucial for accurate budgeting.

Fixed expenses explained

What are fixed expenses 

Fixed expenses are recurring costs that remain relatively constant over a specific period. These expenses are typically predictable and don’t fluctuate significantly based on your consumption. As a whole, fixed expenses play a crucial role in financial stability and are essential for long-term financial planning, as they represent your ongoing financial obligations.

Fixed expenses examples

Here are some common fixed expense categories:

• Housing: Costs related to your accommodation, such as HDB or condo rent, mortgage payments, and property tax.

• Insurance: Premiums for various insurance policies, including health, life, and car insurance (e.g., from providers like Prudential and AIA).

• Education: Expenses related to schooling, such as school fees, tuition, and student loan repayments.

• Loan payments: Regular payments for car loans, credit card instalments, and personal loans.

• Subscriptions: Recurring charges for services like mobile phone plans, home broadband, and streaming services.

How to create a budget for variable and fixed expenses

Note down all of your expenses

To effectively manage your finances, whether for personal or business needs, the crucial first step is to meticulously track all your spending. This involves meticulously tracking all your expenses, both variable and fixed. This can be done using various methods, from manually recording transactions in a spreadsheet to leveraging the convenience of banking apps or dedicated budgeting tools. Many banks in Singapore offer helpful features within their mobile apps, such as DBS NAV Planner or OCBC Money Insights, which automatically categorise your spending and provide visual summaries.

Regularly reviewing your expenses, whether daily, weekly, or monthly, is essential for identifying what your spending patterns are and uncovering potential areas where you can cut back and save money.

Set limits and save

Once you have a good understanding of your spending, you can start setting limits and allocating funds for different expense categories. A popular budgeting guideline to consider is the 50/30/20 rule, which suggests allocating 50% of your income to needs (fixed expenses), 30% to wants (variable expenses), and 20% to savings and debt repayment.

However, this is just a guideline, and you should adjust the percentages based on your individual circumstances and financial goals. To help you calculate and visualise your budget, consider using budgeting apps and calculators. These tools can provide personalised recommendations and help you stay on track towards achieving your financial objectives.

Saving on variable expenses

Here are a few tips to help you reduce your variable expenses:

• Transport: Opt for public transport (MRT, buses) whenever possible, as it's generally more affordable than private transport. Utilise EZ-Link cards for potential discounts on public transport fares.

• Dining: Reduce your dining out expenses by cooking at home more often. When you do dine out, consider choosing hawker centres or budget-friendly eateries. Leverage credit card dining promotions to save on restaurant meals.

• Utilities: Compare electricity plans from different providers in the Open Electricity Market to find the most cost-effective option. Practise energy-efficient habits at home, such as using energy-efficient appliances and reducing water consumption.

• Shopping: Be a savvy shopper by utilising cashback platforms like ShopBack to earn rebates on your purchases. Take advantage of credit card promotions and discounts to save on clothes, gadgets, and other items. Look out for mega sales like Amazon Prime deals.

• Entertainment: Explore free or low-cost entertainment options in Singapore, such as visiting parks, attending community events, or utilising student or senior discounts where applicable.

In addition to these tips, consider using other budgeting methods like the envelope system, where you allocate cash to different spending categories in physical envelopes. This can help you visualise your spending and stick to your budget.

Saving on fixed expenses

Reducing fixed expenses can be more challenging, but there are still strategies you can employ:

• Housing: If you have a home loan, explore refinancing options to potentially secure lower interest rates and reduce your monthly mortgage payments.

• Insurance: From life insurance to car insurance, regularly compare insurance providers to ensure you're getting the best coverage at the most competitive price. Optimise your coverage to avoid paying for unnecessary policies.

• Subscriptions: Review your subscription services (mobile phone plans, home broadband, streaming services) and cancel any unused or redundant services. Consider switching to family plans to share costs with others.

• Loans: Prioritise paying off high-interest loans, such as credit card debt, as quickly as possible to minimise interest charges.

Consider setting up automatic bill payments, as it can help you avoid late payment fees and potential penalties.

Monitor your spending

Regularly monitoring your spending is crucial for staying on track with your budget and achieving your financial goals. Schedule periodic financial check-ins, such as monthly or quarterly reviews, to assess your income and expenses.

During these check-ins, review your spending patterns to identify areas where you can further reduce spending or reallocate funds. Consider setting specific financial goals, such as building an emergency fund, saving for a down payment, or investing for retirement. By regularly monitoring your spending and tracking your progress towards your goals, you can make informed decisions and adjust your lifestyle choices accordingly to ensure long-term financial well-being.