What is a budget variance?

A budget variance refers to the difference between what was budgeted or expected and what actually occurred in terms of income or expenditures. This concept is fundamental in personal finance and helps individuals and organizations assess their financial performance.

Understanding budget variance offers valuable insights into spending habits and can help identify areas where one might be overspending or underspending compared to their planned budget. By analyzing these variances, individuals can adjust their financial strategies to better align with their financial goals.

For instance, if the budget anticipated $1,000 in expenses but the actual expenses were $1,200, the budget variance would be a negative $200. Conversely, if income exceeds the budgeted amount, that would be a positive variance. This analysis allows for corrective actions to maintain financial health and accountability, making it a crucial aspect of effective personal finance management.