Budget variance is the difference between the amount you planned to spend in a category and the amount you actually spent. A positive variance means you spent less than budgeted (favorable), while a negative variance means you overspent (unfavorable). Tracking your variances regularly will help you identify patterns, like consistently underestimating grocery costs or overestimating entertainment spending. Through analysis of your variances, you can adjust your budget to better reflect reality. It's one of the most useful tools for improving budget accuracy over time.