Income & Expenditure Reality

Most people genuinely don't know where their money goes. Not because they're careless, but because spending has become invisible. Money leaves your account in dozens of small transactions—direct debits, card payments, subscriptions you forgot you had. You remember the big stuff but the rest just... happens.

This matters because you can't make decisions about money you don't realise you're spending. The fundamental truth is simple: what comes in, minus what goes out, equals what you actually have. Not what you think you have. Not what you hope you have. What's actually there.

Why You Need to Know the Truth

You can't build an emergency fund if you don't know how much you need to cover your actual expenses. You can't invest spare money if you don't know what's genuinely spare. You can't plan for retirement if your baseline numbers are fiction.

Financial advisers see this constantly. Someone comes in wanting investment advice, and the first question is "How much can you afford to invest monthly?" The answer is usually a guess. Sometimes a wildly optimistic guess. The adviser then asks them to track spending for a month, and the number that comes back is often half what they thought they had available.

The Three-Month Reality Check

Look at your last three months of bank statements. Not one month—one month can be unusual. Three months shows the pattern. Add up everything that went out. Everything. Don't categorise it yet, don't judge it, just total it.

Now divide by three. That's your actual monthly expenditure. Compare it to what you thought you spent. The gap between those two numbers is where your financial confusion lives.

The Categories That Matter

Once you know the total, you need to understand where it's going. Not in obsessive detail, but in broad categories that reveal patterns:

Fixed costs: Rent, mortgage, insurance, loan repayments. These don't change month to month. They're predictable.

Variable essentials: Food, transport, utilities. They vary a bit, but you need them. You can't cut them to zero.

Discretionary spending: Everything else. Eating out, hobbies, subscriptions, clothes, entertainment. This is where you have real choice.

The ratio between these three categories tells you something important about your financial flexibility. If 95% of your income goes to fixed costs and variable essentials, you're financially brittle. Any shock—job loss, unexpected expense, life change—and you're in trouble immediately. If you've got meaningful discretionary spending, you've got room to manoeuvre.

Income Isn't Just Salary

When calculating income, include everything that actually lands in your account. Salary after tax. Freelance income. Rental income if you have it. Regular dividends. Child benefit. Whatever comes in regularly enough to rely on.

Don't include one-off windfalls, tax refunds, or money from selling things. That's not income you can plan around. It's a bonus when it happens, but building your financial life on irregular money is building on sand.

The Uncomfortable Truth About Lifestyle Creep

Here's what happens to most people: they earn more, and their spending rises to match it. They get a raise, and within six months they're spending all of it. Not consciously. It just... happens. Better flat, nicer holidays, more meals out, the occasional luxury that becomes routine.

This isn't moral weakness. It's human nature. But it means that income alone doesn't determine financial security. People earning £100,000 can be just as month-to-month as people earning £30,000 if their expenditure has risen to match.

The gap between income and expenditure matters more than either number alone. Someone earning £35,000 and spending £28,000 has more financial options than someone earning £75,000 and spending £73,000.

What Good Looks Like

You don't need forensic detail on every transaction. You need to know, within a couple of hundred pounds, how much comes in and goes out each month. You need to know which expenses are fixed and which are flexible. You need to know if you're living within your means or slowly sliding into debt.

Good enough looks like this: you can answer the question "How much do you spend monthly?" within 10% accuracy. You know your major expense categories. You know if you're saving or spending everything. You check your account weekly, not because you're anxious, but because you're informed.

Perfect tracking is the enemy of good tracking. Don't build a system so complex you'll abandon it. Build one simple enough that you'll actually use it.