Quick Guide #1 – Income & Expenditure

Apr 7, 2024 | Financial Planning

Assessing Income and Expenditure: The Foundation Stone of Financial Planning

We’re all terrible for saying ‘I had no choice’ but really, we always have a choice. Even if it’s just to do something or do nothing.
Much in life is deterministic. You often have binary choices or multiple-choice options. Then having made than choice, you have a new set of decisions to make.

Financial planning is the process of creating a roadmap for your financial future. It involves setting goals, identifying your current financial situation, and developing a plan to achieve your goals.

The world of finances and financial products can seem utterly impenetrable but actually it’s a system largely based on straight forward rules and concepts but so heavily layered and wrapped in jargon that John Smith or Joanne Bloggs just doesn’t stand a chance.

So, this series of quick guides covers some of the fundamental elements of financial planning, hopefully it will leave you better informed to manage your own affairs and able to see where professionals can add real value.

One of the most important steps in financial planning is assessing your income and expenditure. If you do not know what’s coming in and what’s going out, you cannot plan. You cannot have real peace of mind.

Why is assessing income and expenditure so important?

Understanding your income and expenditure is essential for creating a realistic financial plan. It allows you to see where your money is going and identify areas where you can make changes. For example, if you are spending more money on eating out than you are on groceries, you may want to consider cutting back on restaurant meals. Or perhaps you hadn’t realised how much your car insurance premium had crept up to!

Assessing your income and expenditure also helps you to identify your financial goals. For example, if you are saving for a deposit on a house, you will need to know how much money you need to save each month.

How to assess your income and expenditure

The first step in assessing your income and expenditure is to track your spending for a month. This will give you a good understanding of where your money is going. You can use a budgeting app or simply write down all your expenses in a notebook or spreadsheet (google sheets is a decent free option if you aren’t an Office 365 user).

Once you have tracked your spending, you can start to categorize your expenses. This will help you to see where you are spending the most money. Some common expense categories include housing, food, transportation, and entertainment.

Once you have categorized your expenses, you can compare your income and expenditure to see if you are spending more money than you are earning. If you are, you will need to make some changes to your budget.

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” – Charles Dickens, David Copperfield

This quote highlights the importance of living within your means. If you spend more money than you earn, you will eventually end up in debt and financial distress.

It’s much easier to control your expenses than increase your income for the vast majority of people.

Here is a super simplified example;

Expenditure Amount PM (GBP)
Rent/Mortgage £1,200
Food £600
Transportation £250
Entertainment £150
Total £2,200


Net Income: £2,000
Comparison: Total expenditure – fictional income = -£200

This table shows that the person in this example is spending more money than they are earning. This is unsustainable in the long term and will lead to financial problems. The person needs to either increase their income or reduce their expenditure. You can create a table like this using this free budget calculator available online.

Tips for reducing expenditure;
 Create a budget and track your spending. This will help you to identify areas where you can cut back.
 Cook more meals at home instead of eating out.
 Take public transportation or walk instead of driving whenever possible.
 Cancel unused subscriptions and memberships.
 Shop around* for the best deals on insurance, groceries, and other expenses.

If you are struggling to reduce your expenditure on your own, you may want to consider speaking to a professional. They can help you to create a budget and develop a plan to reach your financial goals.

*Never assume you’re getting a good deal! Yes, using a broker or adviser can have costs but often the net result is significantly better than simply sticking with your current insurer, lender or pension provider etc.


Assessing your income and expenditure is the foundation stone of financial planning. It is important to understand where your money is going and identify areas where you can make changes. This will help you to achieve your financial goals and live a financially secure life.

By Alex Fry (Managing Director)