A Financial Health check is a review that needs to be carried out on finances. Variable costs are the last section of costs to be reviewed in the Financial Health check. We have previously looked at Income, Long-term loans, Short-term debt, and Fixed cost. Variable costs are flexible costs that vary depending on the level of output for example, money for groceries, going out and shopping. This is the main reason why I recommend reviewing them last.
Have you previously overspent on variable costs?
It is very easy to overspend on variable costs. For example, whenever I go food shopping on an empty stomach I end up buying more food than expected. The best approach would be to plan in advance, diarise events and activities you plan on attending and, calculating how much it would cost. As these are variable cost, there is an option to flex, change or reduce the costs depending on whether or not you can afford them.
One Saturday afternoon during the summer, my husband and I decided to go to Southend on Sea for the day. When we got there, we bought fish and chips and the prices were exorbitant. I was very disappointed because if I had made some food beforehand or researched local supermarkets I could have saved some money. This was a reminder of the importance of planning in advance.
Can you afford it and is there a cheaper option?
There are times when I had to reduce the amount I spent on variable costs. Ways I have reduced my expenses include making my own lunch rather than buying lunch at work, buying cheaper options like meal deals, reducing the amount I spent when going out for dinner or movies. It is important to forgo some luxuries in order to pay off debts, save for something important or invest for the future.
Is it a priority?
As you can easily control the amount spent on variable costs, it is important to have a holistic view of your finances. If there is not enough income coming in or if other debts need to be paid off, it is wise to adjust the variable costs and to keep within those spending plans. Prioritising and paying off debts or investing is beneficial in the long run.
Reviewing Variable Costs concludes the Financial Health check for now. It is important to remember that any changes that need to be made may not produce results over night. Consistency and discipline will help you to achieve Deep Pockets and be financially savvy!