{"id":181,"date":"2018-11-14T20:54:13","date_gmt":"2018-11-14T20:54:13","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/?post_type=chapter&p=181"},"modified":"2018-11-14T21:01:08","modified_gmt":"2018-11-14T21:01:08","slug":"budget-variances","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/chapter\/budget-variances\/","title":{"raw":"5.4 Budget Variances","rendered":"5.4 Budget Variances"},"content":{"raw":"
\r\n
<\/div>\r\n<\/div>\r\n
\r\n
\r\n
\r\n
\r\n

Learning Objectives<\/h3>\r\n
    \r\n \t
  1. Define and discuss the uses of budget variances.<\/li>\r\n \t
  2. Identify the importance of budget-monitoring activities.<\/li>\r\n \t
  3. Analyze budget variances to understand their causes, including possible changes in micro or macro factors.<\/li>\r\n \t
  4. Analyze budget variances to see potential remedies and to gauge their feasibility.<\/li>\r\n<\/ol>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

    A budget variance<\/strong>[footnote]A difference between the actual results of your financial activity and your expected, budgeted results.[\/footnote] occurs when the actual results of your financial activity differ from your budgeted projections. Since your expectations were based on knowledge from your financial history, micro- and macroeconomic factors, and new information, if there is a variance, it is because your estimate was inaccurate or because one or more of those factors changed unexpectedly. If your estimate was inaccurate\u2014perhaps you had overlooked or ignored a factor\u2014knowing that can help you improve. If one or more of those factors has changed unexpectedly, then identifying the cause of the variance creates new information with which to better assess your situation. At the very least, variances will alert you to the need for adjustments to your budget and to the appropriate choices.<\/p>\r\n

    Once you have created a budget, your financial life continues. As actual data replace projections, you must monitor the budget compared to your actual activities so that you will notice any serious variances or deviations from the expected outcomes detailed in the budget. Your analysis and understanding of variances constitute new information for adjusting your current behavior, preparing the next budget, or perhaps realistically reassessing your behavior or original goals.<\/p>\r\n

    The sooner you notice a budget variance, the sooner you can analyze it and, if necessary, adjust for it. The sooner you correct the variance, the less it costs. For example, perhaps you have had a little trouble living within your means, so you have created a budget to help you do so. You have worked out a plan so that total expenses are just as much as total income. In your original budget you expected to have a certain expense for putting gas in your car, which you figured by knowing the mileage that you drive and the current price of gas. You are following your budget and going along just fine. Suddenly, the price of gas goes way up. So does your monthly expense. That means you\u2019ll have to<\/p>\r\n\r\n