Simply put, budget variance is when youre spending more than you budgeted for. If youve ever tried to live on a budget, youve probably experienced it.
Its very common to have variance when you first start budgeting. You have to take time to work out the details of your budget until it actually works!
Everyone deals with variance in their budgets at some point. It doesnt mean that you totally blew your budget or that you need to start all over again.
There are lots of different things that can cause you to spend more than you intended to. The first thing to dealing with this problem is to identify the factors that put you there in the first place.
Things that cause budget variance
One of the major things that causes you to spend more than your budget allows for is just that you didnt budget enough.
Maybe at the beginning of the month you think you can get by with £200 of money for shopping. If you are single, that might be reasonable. If you have a family of five to feed, though, that could be too little. If you know that youve done all you could to save money on your food budget for the month but you still overspent, then you need to adjust your budget to a more reasonable goal.
Of course, sometimes it can look like you havent budgeted enough when youve really gone and overspent. Its so easy to do, especially on things like clothing, food, and going out. If youre over budget in these areas, it might be time to take an honest look about what youre spending and to see if you can cut back. If you need to, get out all your receipts for the month. Look at what you actually spent and where you spent it. Could you cut back next month?
Sometimes you just forget to budget for something. This happens often with expenses that dont come up every single month. Maybe, for instance, your car needs some basic maintenance work every three months. Unless you remember to budget one third of the cost of the maintenance every month, youll end up blowing your budget when that third month comes around. If you forgot to budget for something, simply rewrite your budget with that in mind next time.
Another major cause of budget variance is an unexpected emergency. If your car stops running, or your washing machine stops working, you may end up spending way more than you were supposed to in that month. This can be a problem if you have to fall back on credit cards, especially if youre in the process of getting out of debt. Instead of letting emergencies ruin your budget, save up an emergency fund so you have money already available to take care of such problems.
Dealing with the budget variance
Now that you know why your budget is wrong, its time to deal with it. There are loads of different ways to deal with variance in your budget. Here are just a few ideas to get you started.
Have a realistic budget
Many people think they can write a budget once and be done with it forever. This isnt true, though. Your budget needs to flexible with your lifestyle. Each time a major change - a new baby, a new home, a new job, etc. - comes about, change your budget so its realistic for where you are now. Even if no major changes have happened, its a good idea to review your budget every few months to ensure that it really is working for you.
Save more money
Lots of times your blown budget is due simply to overspending. There are lots of ways to save on food shopping and other household expenses, which can help keep your budget down each month. If there just isnt enough money to go around, look at ways to save on your household expenses like car insurance, home utilities, and even your mortgage.
Get an emergency fund
If youre paying off debt, then you dont need a huge emergency fund. You should put more of your money toward your debt. Once youre debt-free, though, you need to have about three to six months of expenses saved away in the bank. That seems like a huge goal, but it can help you stay on budget and out of debt when a major emergency occurs.
Budget variance is something that happens to every good budgeter. In order to notice the variance, though, you have to actually complete your budget. It can be tempting to give up on writing down all your spending half way through the month. If you do this, though, youll never be sure where your overspending is coming from! Stick to that budget, and dont get frustrated when it doesnt work out as planned. Instead, identify the problem, take control and figure out how to deal with it.
See How to Make a Budget to get started.