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Investment Or Expense?

October 25, 2013

Commonly confused, there is an important distinction.

An expense is anything you spend money on.

An investment is anything you spend money on that has an expected return greater than its cost.

Just because you spend money on something does not mean it is an investment.

Sure there is more to life than money, and there are returns other than financial. Sure, you can metaphorically invest in happiness and quality of life; after all, money doesn’t do you any good unless you spend some of it on things that make you happy.

The problem is that calling all of your expenses investments helps you rationalize spending a lot of money on things you want but that don’t make you richer (in any sense of the word). Which is fine if you are satisfied with your net worth never increasing.

If that isn’t you, however, it is important to be clear on the distinction between expenses and investments, so that you can choose expenses that pay off in happiness and investments that pay off financially. Not either or, but both.


From → Money, Prosperity

One Comment
  1. Thought provoking article, Dane.

    To add to the above, accountants also talk about expenses being the current period loss of value from an asset (that was previously purchased) i.e. where a significant time delay exists between the cash spent and the expense recognised. Also, investment value can be the lower of value in exchange and value in use.

    Qu: How about things that are a bundled price and are both expenses & investments concurrently (waste removal & its environmental treatment),or things that perhaps change from one to the other (angel investing, friendships or your kids say?)?

    Finally, can you have expenses that pay off in sadness/dignity (funeral services) too?

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