Exploring The Difference Between an Investment and an Expense

Exploring-The-Difference-Between-an-Investment-and-an-Expense-1024x681

In theory, the definitions of an investment or an expense are quite clear-cut. An expense, or cost, is simply the dispensing of time, money, or resources. An investment, while an expenditure, comes with the expectation of a return.[1][2] While the two ultimately have the same goal –to acquire a good or service—their intentions and outcomes differ. So, let’s discuss the main differences between an expense and an investment and why sometimes, the reasoning to back up each cost can make a difference.

Defining Each Concept

For starters, the period of usefulness of the asset acquired differs between an expense and an investment. The item, service, or experience obtained could be considered an investment if it is durable and promotes continual benefit for some time.[3] An expense, however, is when any potential gain is immediately received and finished shortly—its useful life is typically less than one year.[4]

What Does This Mean for You?

So, what are some examples of an expense vs. an investment? As we know, technically speaking, an expense is money that you spend on a simple exchange that doesn’t provide financial returns. People often spend their money on expenses. They pay rent and buy clothes, decor, and groceries – things used for personal, non-financial, non-speculative reasons. But expenses need to be differentiated from other kinds of monetary transactions if you want to grow your wealth. That’s where investments can help!

There are many ways to invest, like buying stocks, bonds, or even paying for tuition and enrolling in college. By owning these items, or earning a degree, you are basically ensuring that you will have access to more financial freedom in the future.

However, there is a gray area to this distinction as well. Some investments aren’t as obvious. For example, we tend to view materialistic items as expenses rather than investments. But, if you purchase something like a vintage car, you could potentially sell it for a higher price down the line, thus turning this into an investment.  Similarly, college tuition is considered an investment. However, there is no monetary gain directly associated with it. There is an indirect monetary value, given a degree often sets one up for a prosperous career, but there are both monetary and non-monetary values to completing college.

Conclusion

Balancing expenses and investments are a vital part of maintaining financial and personal well-being. Whether you are an entrepreneur launching your business or considering helping pay for your family’s college expenses, knowing the difference between expenses and investments is one of the best ways to increase your financial literacy. Overall, implementing a financial plan that accounts for both investments and expenses will ensure your money works for you, helping you enjoy your life and gain financial freedom. If you’d like to discuss your financial plan further, contact us for a complimentary meeting.

 

Share This Post:
Cornerstone Wealth

SERVICES

Cornerstone Wealth

Schedule a Call

Ready to take control of your financial future? Schedule a call with Cornerstone Wealth Management today.

Join Our Mailing List

FINANCIAL INSIGHTS DELIVERED STRAIGHT TO YOUR INBOX

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Addressing Market Volatility in Today's World
READ OUR LATEST GUIDE

Addressing Market Volatility in Today's World

Planning for retirement is never a “set it and forget it” task. There are unexpected disasters, market drops, and changing laws that could cause retirees to reevaluate their financial situation. Ultimately, there’s no way to predict everything that will cause market downturns. However, you can prepare yourself for one by having a solid financial strategy in place.

What to Consider in Your Charitable Giving Plan
READ OUR LATEST GUIDE

What to Consider in Your Charitable Giving Plan

Congratulations! You’ve decided to give to a charitable organization. Charitable giving is a wonderful way to help further causes you are passionate about and feel good while doing it.

The Importance of Designating Beneficiaries
READ OUR LATEST GUIDE

The Importance of Designating Beneficiaries

When life gets hectic and your to-do list seems endless, it can be easy to let financial planning details slip through the cracks. However, updates to your designated beneficiaries on 401(k) plans, IRA accounts, and other retirement assets is vitally important.

Managing Inflation in Retirement
READ OUR LATEST GUIDE

Managing Inflation in Retirement

You may have noticed that the things you buy regularly have become more costly, and you may be pondering if inflation will stay high. For individuals close to retirement or already retired, it is essential to take measures to protect themselves from the eroding effects of inflation.

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

The Birth of a Grandchild
READ OUR LATEST GUIDE

The Birth of a Grandchild

Congratulations! The arrival of a grandchild is always an exciting time. Since many grandparents wish to assist in covering their grandchildren’s future financial needs, it’s also a good time to consider financial preparations for the future. If you hope to provide funds to your grandchildren, both 529 plans and trusts are beneficial options.

Cornerstone Wealth

WELCOME TO OUR NEW SITE

We've Made Some Big Changes

We’re delighted to introduce our new and improved online space tailored to elevate your online experience.

If you have any thoughts, questions, or if you’d like to schedule a consultation drop us a line. Your insights help us refine our services.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Skip to content