Expenditure
Money spent on various items, both essential and non-essential. The booklet teaches you to save first and treat expenditure as what is left: Income − Savings = Expenditure.
In plain language
Expenditure is the money that goes out. The booklet defines it as "money spent on various items which include essential and non-essential items."
Both kinds count. Rent, food and school fees are essential. A new phone, eating out and a holiday are not. All of it is expenditure.
It is one of the four things financial education teaches you to manage: income, expenditure, assets and liabilities. The booklet's Chapter 1 says the modern world has created a "need for a better management of personal finances with proper management of income and expenditure."
The big idea is about order. Most people spend first and save whatever is left, which is usually very little. The booklet asks you to reverse that.
How it works
Expenditure and savings (Chapter 2): savings are "the surplus of income over expenditure".
Savings = Income − Expenditure
The booklet's recommended order (Chapter 3): "While making financial plans, one should first ensure a planned savings amount and then plan for meeting expenses." It quotes Warren Buffett, "Don't save what is left after spending; spend what is left after saving", and turns it into:
Income − Savings = Expenditure
When expenditure is too high (Chapter 2): "Money borrowed to meet shortfall of money when expenses are more than the funds available in hand is called debt." So overspending leads straight to borrowing.
Controlling it (Chapter 8, tips to avoid a debt trap): do not buy more than you can afford; do not get lured into "WANT" items; use a debit card instead of a credit card to avoid spending beyond your means; spend within your means.
Knowing it (Chapter 3): the first step of financial planning is understanding "what your incomes, expenses, assets and liabilities/debts are".
A worked example
Amounts are illustrative.
Lakshmi, a bank clerk in Mysuru, earns Rs 40,000 a month. She writes down one month's spending:
| Item | Type | Amount |
|---|---|---|
| Rent | Essential | Rs 11,000 |
| Groceries and utilities | Essential | Rs 9,000 |
| Child's school fees | Essential | Rs 4,000 |
| Eating out and shopping | Non-essential | Rs 8,500 |
| Mobile upgrade EMI | Non-essential | Rs 3,000 |
| Total expenditure | Rs 35,500 |
Savings = 40,000 − 35,500 = Rs 4,500
She wants to save Rs 8,000 for her daughter's education. Following the booklet, she saves first:
Expenditure allowed = 40,000 − 8,000 = Rs 32,000
She must cut Rs 3,500. The essential items stay. She reduces eating out and shopping to Rs 5,000, which does it.
Had she instead used a credit card to keep spending Rs 35,500 while saving Rs 8,000, she would be short Rs 3,500 a month. That shortfall, borrowed, is debt.
Why NISM asks about it
Chapter 1 (Introduction) names expenditure among the four things to manage; Chapter 2 (Key Concepts in Personal Finance) defines it and savings as income minus expenditure; Chapter 3 (Financial Planning) gives the save-first rule; Chapter 8 (Borrowing-Related Products) gives the tips on spending within your means. Expect a definition question (essential and non-essential) and the Income − Savings = Expenditure equation.
Common exam traps
- Expenditure includes non-essential items too, not only necessities.
- The booklet says save first, then spend. "Spend first and save the rest" is the wrong answer.
- Income − Savings = Expenditure is the recommended form; Savings = Income − Expenditure is the definition of savings. Both are consistent.
- Expenses greater than funds in hand lead to debt, by the booklet's definition of debt.
- Using a debit card rather than a credit card is the booklet's tip for keeping expenditure within your means.
Check yourself
1.According to the chapter, proper management of income, expenditure, assets and liabilities leads a person to which situation?
- a)Guaranteed profits from the securities market
- b)Better financial well-being
- c)Returns higher than the market average
- d)Complete elimination of investment risk
Show the answer
Answer: (b) Better financial well-being
The chapter ends its promise at "better financial well-being" — and where the promise stops is exactly what is being tested. Financial education is never claimed to produce guaranteed profits, market-beating returns or the elimination of risk. It could not: Chapter 3 will state plainly that "risk and investing go hand in hand" and that risk is "the probability or likelihood of a loss occurring in relation to your expected returns". Whenever a Chapter 1 option upgrades the promise into certainty or outperformance, it is a distractor. Well-being is a state — obligations met, goals funded — and a person with modest money and a clear plan can have more of it than a person with a large unplanned heap.
2.How does the booklet define savings?
- a)The total balance lying in a bank account
- b)The surplus of income over expenditure
- c)Money invested in fixed deposits
- d)Income earned from salary and wages
Show the answer
Answer: (b) The surplus of income over expenditure
"Savings are the SURPLUS OF INCOME OVER EXPENDITURE." The word surplus makes savings a flow, not a balance. A family earning ₹40,000 and spending ₹42,000 has negative savings this month even if ₹3 lakh sits in its account from earlier years — it is running down the past rather than adding to it. The chapter breaks the two components out: income is "money earned from various sources like Salary, Wages, etc." and expenditure is "money spent on various items which include essential and NON-ESSENTIAL items". Note that both essential and non-essential spending count; an option restricting expenditure to essentials is wrong.
3.Which of the following is NOT among the issues the chapter says generated the need for better management of personal finances?
- a)Complexity of financial products
- b)Prevalence of fraudulent and Ponzi schemes
- c)Fluctuation in foreign exchange rates
- d)Need for funds to get a better quality of life after retirement
Show the answer
Answer: (c) Fluctuation in foreign exchange rates
"People face various issues like COMPLEXITY OF FINANCIAL PRODUCTS, PREVALENCE OF FRAUDULENT AND PONZI SCHEMES, NEED FOR FUNDS TO GET A BETTER QUALITY OF LIFE AFTER RETIREMENT, etc. These issues have generated need for a better management of personal finances with PROPER MANAGEMENT OF INCOME AND EXPENDITURE." Currency movement is a genuine economic phenomenon, but it is not one of the four the chapter names. Examiners build this question type by inserting a real-world problem that simply is not on the list — other common intruders are unemployment, stock market volatility, rising interest rates and taxation. Learn the four as a closed set: complexity, fraud, retirement, income versus expenditure.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Debit cardA card linked to your own bank account, used at ATMs and to pay at shops. It spends money you already have, so there is no interest and no credit history needed to get one.
- Financial planningThe process of estimating what a person will need money for across their lifetime and building an investment plan to meet each of those needs — savings with a purpose attached.
- IncomeMoney earned from sources such as salary or wages. In the booklet it is the starting point of every budget: savings are what is left of income after expenditure.
- Net worthEverything you own minus everything you owe — the one number that says where a household actually stands, and the starting point of any financial plan.
- SavingThe difference between money earned and money spent. Saving becomes investment only when that surplus is committed for a period in the expectation of getting back a larger amount.
- LiabilitiesWhat you owe to others or have borrowed from them, such as a home loan, a car loan or money borrowed from a person. Assets minus liabilities gives your net worth.