What is a budget variance?

A budget variance refers to the difference between what was planned in a budget and what actually occurred during a specific period. It is a critical financial metric that helps individuals and businesses assess their financial performance.

When the actual financial results deviate from the budgeted estimates, it creates variances that can be either favorable or unfavorable. A favorable variance occurs when actual performance exceeds expectations, while an unfavorable variance arises when actual performance falls short of what was anticipated. Understanding these variances allows for better financial management and can lead to adjustments in budgeting or operational strategies to enhance future performance.

The other choices do not accurately capture the essence of a budget variance. Total income over expenses, total savings, or retirement savings are important financial metrics but do not specifically relate to the comparison of expected versus actual financial performance.