Does it make the same sense to spend money on a holiday weekend as on an English course ? And does paying the house rent have the same repercussion for your future as buying a new computer to work with? In both cases the answer is negative. Expense or investment?
For effective development in personal finances, you must learn to clearly differentiate what is an expense from what is an investment . In a first approach to both contexts, we could say that an expense is everything that impoverishes you, while an investment is everything that enriches you.
In our examples taken from <a href=”https://br-stone.com/,”>br-stone.com/](https://br-stone.com/), the holiday weekend and the rent of the house would be expenses, since in both cases money comes out of our pocket without intention of returning. On the contrary, both the English course and the new computer would be investments, as we hope to make a future profit from them.
Spending: the further the better
One of the fundamental rules to have a healthy home economy is to have few expenses. In the day-to-day life of a household, a lot of them are generated: receipts, the supermarket, clothes, the pharmacy, the children’s school, the car … Some are fixed and are repeated every month while others only happen occasionally.
When we spend money, it comes out of our pocket and we do not expect any return in return. For example, we pay 80 euros for an electricity bill knowing that this money is not going to return to our pocket in any way. The 80 euros are nothing more than the consideration for enjoying the electricity service.
The expense does not go beyond the enjoyment of the good. Therefore, every time you have to do one, you should ask yourself questions like: am I going to live better spending my money on this good or service? Can I get it cheaper? Would that money be better in my piggy bank?
Investment: thinking ahead
On the contrary, when we invest we do it with the intention of obtaining a profit or a return in the future. That future can refer to a few weeks, a few months, or a few years. Whatever the time horizon, the key to any investment is that a return is expected .
For example, that English course or that computer that we talked about at the beginning of the article are outflows of money that will provide us with a benefit in the future: we will have learned a new language and we will have a more powerful computer to work with. In both cases, the return could be a higher monthly income in our work.
The objective of the investment is that the benefit that we obtain in the future compensates the economic effort of the present . However, in terms of a home it can be more difficult to discern the future benefit, so the return on an investment is usually quantified in terms of savings: we invest in our home with the aim of saving in the future.
For example, if from time to time our refrigerator breaks down and we have to call a technician to repair it, perhaps it would be a good investment to buy a new one, since this would save us the money for repairs.
As you can see, it is very important to differentiate between spending and investment in the domestic sphere, since a good identification of both concepts can mean the difference between saving or not saving money in the long term.