Budget variance

What It Means

BudgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more variance is the difference between what a budget planned and what actually happened, shown in dollars and as a percentage of the plan. A variance is favorable when the result beats the plan, such as spending less or earning more than budgeted, and unfavorable when it falls short. Accounting guides from QuickBooks and NetSuite both describe it this way for businesses, and the same arithmetic works line by line on a household budget.

How It Sounds at Home

• "Groceries were 15% over budget this month."
• "That's a favorable variance on the electric bill."
• "Where did the big variance come from?"

The Breakdown

Formula

Budget variance ($) = actual minus budgeted

Budget variance (%) = (actual minus budgeted) ÷ budgeted × 100

Worked example. One household's month (made-up numbers):

What the result means. Direction alone doesn't tell you much, because an expense over budget hurts while income over budget helps. The percentage makes lines of different sizes comparable: the grocery miss is $90 and 15%, while the electric bill came in $15 under, or 12.5%. It also helps to pick a threshold you'll act on, such as 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more% (an example, not a rule), and look into any line past it. A line that's unfavorable month after month usually means the plan was set too low, and the plan should change.

Good to Know

A variance is only as good as the actual numbers behind it. The Consumer Financial Protection Bureau (CFPB) offers a free spending tracker for recording what you really spend by category, which gives you the "actual" column. QuickBooks and NetSuite describe budget-versus-actual reports showing each variance as a dollar amount and as a percent of the original budget, often with unfavorable ones in parentheses, so check how a report marks them before reading it. For a household, a month-end review of each category is usually enough.

Related Terms and Categories

• Budget

  A plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it.

• Budget review

  A regular check of what you actually earned and spent against your budget, followed by changes to the plan where it no longer fits real life.

• Budget category

  A group of similar costs, such as housing, groceries or transportation, that a budget plans and tracks together with its own amount.

• Zero-based budget

  A budget that assigns every dollar of income to spending, saving or debt, so income minus everything assigned equals zero.

• Expense tracking

  Writing down every purchase and bill as it happens, by category, so you can see where your money actually goes and compare it with your budget.

Household money and budgeting