What is budget variance?

• A. The difference between the amount budgeted and the actual amount spent or received.
• B. The total income for the period.
• C. The rate at which expenses grow.
• D. The net worth at the end of the period.

Answer: (B)

Budget variance is the difference between what you planned to spend or earn in your budget and what actually happened. It shows whether you’re over or under your plan and by how much, helping you adjust spending, savings, or forecasts for future periods. For example, if you budgeted $1,500 for dining out but spend $1,800, the variance is $300 unfavorable. If you spend less than planned, say you budgeted $500 for entertainment but only spend $450, the variance is $50 favorable. This concept isn’t the total income for the period, which is the actual amount earned. It’s also not the rate at which expenses grow (a growth trend) or net worth (assets minus liabilities).