Periodic Expenses: The Guide to Budgeting and Business Planning

The three main types of expenses are fixed expenses, variable expenses, and periodic expenses. Fixed expenses remain constant, variable expenses fluctuate with business activity, and periodic expenses occur at regular intervals but less frequently. Variable expenses are costs that change depending on the level of production, sales, or usage. Unlike fixed expenses, which remain constant regardless of activity, variable expenses fluctuate based on factors like consumption, business output or seasonal trends. Another way of describing variable expenses is that they represent your daily spending decisions.

• We’ve done both and I would recommend it to anyone who wants to save on fixed costs.
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• Analyzing these expenses allows enterprises to reach break-even points, boost operating leverage, achieve economies of scale, and improve profitability.
• This expense group differs for everyone and will depend on their lifestyle, goals, and earnings.
• Despite being predictable, these quarterly, bi-annual, or annual expenses can catch companies unprepared, creating unnecessary cash flow challenges and financial stress.

Definition of Periodic Expenses

Additionally, confirm whether any of the quoted prices include a discount of any time – such as a coupon or sale – ensuring you don’t underestimate the normal amount by mistake. Get your free copy of the Investment Growth Calculator to see what happens if you start investing a certain amount of money every month now. The goal is to visualize that if you start investing (more) money, you can cover your retirement gap later. Whether you’re just starting your financial QuickBooks ProAdvisor journey or seeking to optimize your current strategies, Money Bliss is your partner in achieving lasting financial happiness. It’s important to have an emergency fund set up for unforeseen repairs like these to avoid having to drastically change your lifestyle. Remember, while these strategies can help you cut costs, each individual’s circumstances are different, so personalized considerations should be made.

• With Alaan’s spend management solution, you can easily streamline expense tracking, gain real-time insights, and optimise your budget.
• Variable expenses may be harder to shrink than fixed expenses because they can affect your lifestyle.
• For example, if your rent for a one bedroom apartment is $1850, maybe you move in with a roommate, and your rent is lowered to $800 per month.
• Savings are essential in case you lose your job or want to move from corporate employment to self-employment.
• Regularly reviewing utility bills can reveal areas where you might be overspending.
• Businesses can strategically plan for these expenses by treating them not as occasional surprises but as ongoing obligations distributed across monthly budgets.
• That way, when you re-evaluate your budget every year or when something about your financial situation changes, you can tell at a glance which costs are part of which group.

What Are Variable Expenses?

Resources consumed to provide or maintain the organization’s capacity to produce or sell are capacity costs or supportive overheads. Capacity costs are further divided into standby costs and enabling costs. Standby costs will continue if the firm shuts down operations or facilities temporarily. Examples are depreciation, property taxes, and some executive salaries. Time cost forms a significant portion of indirect costs, hence critical for running the business. It’s crucial to calculate all related expenses accurately to avoid surprises.

Products

Theoretically, you can move to a cheaper home or get a roommate, which means a completely different lifestyle. A billable expense is an expense that you incur on behalf of a customer when you are doing work for them. They are separate from the costs you incur in manufacturing your product.

If you go with the latter approach, you may want to keep your original list as a reminder. That way, you can review it if you can’t recall which expenses you included in that group. For example, if you spend around $150 per year on oil changes, you divide $150 by 12.

There are several ways to do this, depending on your preference. You can go old school with a pen payroll and paper, or use a spreadsheet, budget template or budgeting app. Another way to identify period costs is to establish what doesn’t qualify as such.

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While fixed and periodic expenses are those you need, variable costs are those you choose. That’s right; this is your AMC Pass, your Nordstrom Rack, your late-night Taco Bell. We’re talking earrings at TJ Maxx; Tikka Masala at Trader Joe’s. These expenses don’t occur every month – but can happen quarterly or over a spread of months.

How to budget for variable expenses

Typical fixed expenses include car payments, mortgage or rent payments, insurance premiums and real estate taxes. On the plus side, they are easy to budget for, as they generally stay the same and are paid regularly. Some fixed expenses may be discretionary, like a gym membership or streaming service subscription.

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Unlike periodic expenses fixed expenses, periodic costs do not happen every month but recur on schedules such as quarterly, semi-annually, or annually. Effective financial planning requires anticipating these less frequent expenses. Bonus payments awarded at year-end or tied to company performance require advanced planning and budgeting throughout the fiscal year. These periodic expenses directly affect employee morale and retention, but they can strain cash reserves if they’re not properly anticipated. Establishing monthly accruals based on performance projections can ensure bonus payments are manageable.