When discussing my annual salary increase, my employer wanted me to list all my personal expenditures. They feel I should have plenty of money and I must be spending "frivolously" if I don't. Although I have nothing to hide, I don't want to reveal my personal expenditures to my employer. Is this illegal? How can I avoid giving them this information they requested?
Illegal or not might depend on the country you live in.
But anyway, you employer is an idiot. You are not asking for more money because you need it. You are asking for more money because you have developed yourself and are worth of it. Even if you would live "frivolously" it is really not the matter of your boss.
I would tell him that this question is far beyond his competences. The discussion of annual salary increase is NOT a question of your life style, it is a question of your work style. He should consider your work as base for the discussion not your life.
He really stepped into a "personal area" (sorry don't know how I could this better in english) and he will do again, if you answer this question. I believe it is very important to tell him clearly that you will not answer questions on your private life.
If you are not clear that he has gone too far, you can be sure he will try something similar idiotic in near future.
I am very angry if somebody does something like that to me (similar stuff happened). So I have decided to be very offensive with my answers on such kind of question. Here I might have answered something like:"yes, you are right, I am frivolously. I watch porn the whole night and drink only 30 year old scotch. I need this kind of relaxing because I am forced to answer idiotic questions whole day at work".
Or:"Sorry, I will not show you my expenses because my girlfriend didn't allow."
Or simply say:"I do not show my expenses to my mother. I will not show it to my Boss. I need more money, because I want to save something when I am getting old."
And so on. Good luck. And don't be afraid. There might be other opportunities for you. This one sound as a job were you might burn out in a while.