What does a budget variance indicate?

A budget variance indicates the difference between planned financial outcomes and actual results. This concept is crucial for understanding how well financial plans are being executed. When creating a budget, individuals or organizations forecast expected income and expenses. A budget variance arises when there is a discrepancy between these forecasts and the actual financial performance.

For example, if a budget planned for $500 in monthly expenses but the actual expenses turned out to be $600, the budget variance would highlight this $100 difference. Such variances can be favorable (if spending is less than planned) or unfavorable (if spending exceeds what was budgeted). By analyzing these variances, one can assess the effectiveness of financial planning and make necessary adjustments in future budgets to better align actual results with financial objectives.

In contrast, the other choices focus on specific aspects of budgeting—like the total amount spent, savings, or money saved—which do not encapsulate the broader analysis that a budget variance provides. A budget variance is a critical tool for financial evaluation and planning, making it imperative for effective financial management.