So, finding the cause of a
variance is vital to the implementation of an effective budget. And, the sooner
you determine the root of the disparity, the sooner you will be on track to
implementing your budget.
Also, the variance may result
from a miscalculation of an individual’s income or expenses. An increase in
cost, or decrease in revenues can alter the outcome of your budget resulting in
a difference between the actual figures and the expected ones. These
discrepancies can find an explanation in factors such as inflation where your
purchasing power is limited, or wages that have fallen due to pay cuts.
Needless to say, all these factors are reasons for a variance in a budget, and
they need to be assessed accordingly for a successful budgeting.
Once the budget is created, the
next step is to monitor the budget by comparing it to the actual data so that
you will be able to notice any serious variance or deviation from the expected
outcomes (Siegel & Yacht, 2009). Since, the expectations were based on
knowledge from one’s personal data, any discrepancy could come from a factor
that was overlooked or ignored. Indeed, personal factors such as family
structure, health, career choice, and age have significant influence on financial
choices and can have a tremendous impact on your budget. Therefore, isolating
the cause of the variance could be helpful as it will allow you to take
adequate measures to correct the budget.
In personal finance, a budget can
be defined as a plan that tracks and controls spending with the purpose of
cutting living expenses, or increasing savings. In order to create an effective
budget, it is critical to assess all important factors pertaining to your life.
And factors such as micro and macroeconomic ones, as well as expenses, and
spending patterns should be given a closer look since they are the most helpful
information, you will rely on to build the budget.