What is a budget variance?

A budget variance refers specifically to the difference between what you had planned to spend or earn (the budgeted amounts) and what you actually spent or earned (the actual amounts) over a certain period. This financial metric is crucial for assessing how well an individual or organization adheres to their financial plans. It helps in identifying areas where spending may be too high or where expected income may not be realized, allowing for adjustments to be made in future budgeting efforts.

Understanding budget variances is essential for effective financial management, as they can pinpoint both strengths and weaknesses in a budgeting strategy. For example, if a company budgeted $10,000 for marketing expenses but actually spent $15,000, a negative budget variance of $5,000 would indicate overspending, prompting a review of marketing strategies and expenses.

The other answers do not encapsulate the concept of budget variance accurately. The amount saved in a bank account represents savings rather than variances in budgeting. A method of increasing income pertains to revenue strategies rather than financial performance analysis. The total amount of debt is simply a measure of liabilities, which doesn't connect to the performance comparison of budgeted and actual figures.