Investment or Expense?

Is this outflow an investment or an expense? Money comes in and money flows out of our checking accounts each month. Money can only go out for two things: Investment or Expense. In this episode, we explore the difference and how to think differently about some of our outflows. Tune in to the podcast or the YouTube video for the full conversation, or follow the outline below.

The Motive for Money

Money is not the goal, money funds the goal. Money is a tool to allow us to decide how to live our lives within the confines of our choices and circumstances. We need to know our goals and our values if we want to be intentional with our money and live lives closer to our individual ideals.

We can do two things with money: we can spend it now (expense) or save it for the future (investment). How far into the future will influence how that is invested. But ultimately, we are not investing for investing’s sake. We are investing for future expenses. Everything will ultimately be an expense. If we choose to less expenses now to save more, it will allow us to have more expenses later.

Expense: Spending Today

We have fixed and variable expenses—required and discretionary. Some we enjoy (entertainment and food), and others we loath (taxes). Some are necessary but not fun (insurance).

Investment: Spending Tomorrow

We invest so that we have some to spend tomorrow. We pay now so we can enjoy later. Investments are not current expenses.

Your savings line in your budget is not an expense. It is an investment. The principal part of your mortgage payment is not an expense, it’s an investment. The principal portion of your student loans should not be an expense. It is a retroactive investment in your income.

Never think of monetary investments as expenses. If we can get away from the mindset that our money is here to fully spend on today’s pleasures, we will have more of them in our lifetime. But there are non-monetary investments we can make.

Alternative “Investments”

We can also choose to make alternative “investments”. No, not Bitcoin and precious metals. But not in equities inside of retirement accounts either. Having more money, or more fun later, aren’t the only investments.

When our values are clear, decisions are easy. Money is a tool that helps us live how we want and that funds our goals. When we are clear on what we want, we can better fund those. What else could we invest in?

Invest in Yourself

Is the gym membership an investment or an expense? If you don’t use it, it’s an expense. But if it is helping you be healthier, then it’s an investment. And as we covered in a previous episode, your health is your greatest asset and you should invest in it.

Is my $300/yr Audible subscription an expense? No, it’s an investment in my growth and grit.

Invest in Your Marriage

Are those marriage books, date nights, conferences, retreats, and vacations alone together expenses? Or are they an investment in your marriage?

Invest in Your Family

Is that family cabin and expense? Or is it an investment in memories together as a family that will pay dividends for the rest of your life?

Beware of the “Investment Trap”

This can be abused. You can start to rationalize everything as an investment and not an expense. Don’t do that. Critically evaluate anything you are spending money on that you think might be an investment. If investing is for the future, then you must ask yourself two questions about any alternative investment:

1. “Will ‘investing’ in this bring me closer to my long-term goals and values in this area?”
2. “Is this ‘investment’ in balance with my other goals and values?”

Striking the Balance Between Investments

One of your goals may be to be able to retire. Clearly, we cannot “invest” all of our money into cabins and subscriptions and put nothing toward funding that retirement goal. But if you’re only investing in retirement, are you going to like the person who arrives there (either the one next to you or the one in the mirror)? You may need to balance that investment with investing in other areas.

The Point of Planning

If the motive of money is to fund the goal, the point of planning is to have more money to fund more goals. Financial planning can help you clarify your goals and values and assign dollar values to these values. If you want guidance on how to start aligning your use of capital with your values, talk these things through with an empathetic planner.

Through good planning, maybe we can all spend a little less on temporary expenses and invest a little more in what is truly valuable to us.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are the opinions of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.