Investment vs. ExpenseMarch 14, 2021
When people put money in the stock market, they typically call it an investment, not an expense. Why? Because they're expecting to earn a return on their investment. They intend for the asset to appreciate in value. No one invests money in the stock market hoping to watch it evaporate.
For some reason, in other parts of life, it's more common to view the outlay of cash as an expense, instead of an investment. How come?
- When you buy groceries, is that an expense? or an investment in health and well-being?
- When parents pay money so their child can join the traveling soccer team or go to college, is that an expense? or an investment in their growth and development?
- When you pay $15 per month for Netflix, is that an expense? or an investment in pleasure?
How you see it, determines how it is. If you see it as 1-time expenditure that disappears, or generates little ripple effect beyond the here and now, then to you, it is an expense. And you'll probably give it the same level of care and attention that you give to other expenses, and you'll experience the same level of satisfaction.
If you see it as an investment and recognize the return it brings, even if the return is short-lived or difficult to quantify, then it's likely you'll give it the same level of care and attention that you give to other investments, and experience the same level of satisfaction.
Is it an expense or an investment? It is exactly what you make it.