What is a budget variance?

A budget variance is defined as the difference between the budgeted amounts and the actual amounts spent or earned. This concept is crucial in personal finance and budgeting, as it allows individuals or organizations to gauge how well they are adhering to their planned financial strategies. By calculating budget variances, one can identify any discrepancies between what was anticipated and what actually occurred, prompting necessary adjustments to financial plans or spending habits.

Analyzing budget variances helps in understanding performance, making informed decisions, and refining budgeting methods for better efficiency in managing finances. It serves as a critical tool for accountability and financial analysis.