What is a budget variance?

A budget variance refers specifically to the difference between what was planned or budgeted and what was actually spent or earned. This concept is crucial for effective financial management, as it highlights discrepancies that can help individuals and organizations identify areas for improvement or adjustment in their spending or revenue-generating activities. A positive variance indicates that spending was less than budgeted or that earnings were higher than anticipated, while a negative variance suggests overspending or lower-than-expected income.

Understanding budget variances allows individuals to make informed financial decisions, adjusting future budgets based on past performance to better align with their financial goals. This knowledge is essential for anyone involved in budgeting, whether for personal finance or business operations.