Budget Variance

Budget variance measures how much your actual spending differs from your planned budget. Positive variance means you spent less than planned (good), while negative variance means you overspent. Tracking variance helps identify spending patterns and improve budget accuracy over time.

Types of Variance:

Positive Variance (Good):

• Spent less than budgeted
• Money left over for savings
• Indicates good spending control
• Example: Budgeted $500 for groceries, spent $450

Negative Variance (Concerning):

• Spent more than budgeted
• May indicate overspending
• Could lead to debt
• Example: Budgeted $200 for dining out, spent $300

Common Causes of Variance:

• Underestimating costs: Didn't account for all expenses
• Impulse spending: Unplanned purchases
• Price changes: Inflation, rate increases
• Life changes: New job, family, health issues
• Seasonal expenses: Holidays, vacations, back-to-school

How to Track Variance:

1. Record actual spending
2. Compare to budget monthly
3. Calculate percentage variance
4. Identify patterns and causes
5. Adjust budget for next month

Improving Budget Accuracy:

• Track spending for 2-3 months first
• Include irregular expenses
• Build in buffer for unexpected costs
• Review and adjust monthly
• Use past data to predict future costs

Example:

• Budgeted: $1,000 for housing
• Actual: $1,050
• Variance: -$50 (-5%)
• Action: Adjust budget or reduce other expenses