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Question:

A person could save 20% of his income. A year later, his income increased by 25% but he could save the same amount only as before. By what percentage has his expenditure increased?

Explanation:

Let the initial income of the person be Rs. 100.
∴ His initial savings = 20% of income = Rs. 20
∴ His initial expenditure = 100 - 20 = Rs. 80

New income of the preson is 25% more than initial income = Rs. 125
∴ His new savings is same = Rs. 20
∴ His new expenditure = 125 - 20 = Rs. 105

⇒ % Increase in his expenditure = $\frac{105-80}{80}$ × 100 = 31.25%

Hence, option (b).