Reasons to Investigate a Budget Variance

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Monitor your money by examining budget variance.
Monitor your money by examining budget variance. (Image: Jupiterimages/BananaStock/Getty Images)

You could become rich if you examine your budget variance. Without the knowledge of how much you spend in relation to how much you are budgeting, you will likely be wondering where your money goes each month. Get a better handle on your cash by comparing your projected budget to reality.

Forecast

By calculating budget variance you can determine real cost. This will help you to determine how much money is needed on your next budget. Variable budgets can help you estimate what you will spend on food, entertainment and miscellaneous expenses, for example. If you spent $200 on food in the month, but only budgeted for $100, you will be short some cash in that section of the budget. By getting a read on what you actually spent, you will be able to make a realistic assumption of how much money you will need to budget in your food category the next time.

Track Spending

A variable budget requires you to track spending. By investigating why you went over budget in a food category, for example, you can learn to cut costs. Where did you spend money that you didn't need to? Are you eating out too much? In this instance to stay on budget you could eat at home more. Another option would be to apply eating out to your entertainment expenses if those are lower than you anticipated.

Averaging

By investigating your budget each month, you will be able to determine your mean, or average, costs. For example, add your food expenses up over the last year or use a shorter period if you haven't documented a year's worth of spending and divide that by the number of months included in the total. This result will be the average you spend on food each month. You can use this in your next budget to get a grasp of your expenses.

Realism

Examining your budget variance will give you a realistic look at your expenses. You can then weigh your expenses against your income. If your income is less than your expenses, you may need to find another form of employment. By becoming familiar with the real costs of your lifestyle, you improve your money sense. You will think twice about spending on "wants" rather than just "needs," and, overall, improve your financial skills.

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