Summary

The objective of this essay is to differentiate the expenses from the investments, as a result, the researcher obtained the following appreciations: an expense and an investment are not the same, and in many cases, they are taken as synonyms, the differentiation of these two terms helps significantly to both personal and business finances. Helping the individual or entity to grow and properly manage their financial resources.

Abstract

This essay aims to differentiate the costs of investments; as a result, the researcher obtained the following findings: expenditure and investment are not the same, and in many cases are used as synonyms, differentiation of these two terms helps significantly to both personal and business finances form. Helping the individual or entity to grow and properly manage their financial resources.

Introduction

The benefits obtained in this differentiation are fundamental for the entrepreneur, he needs to consider the great importance of knowing the difference in spending and investment and contributing to the improvement of his finances.

The benefits generated by the correct use of finances, avoiding expenses, and seeking investments go beyond the economic return that it can offer to businessmen, it also leads to compliance with its Social Responsibility, that is, they generate a diversity of goods and services. for the community, new jobs, circularization of currency, and even more so are a reflection of the political and economic stability of a country.

Expenses and costs

Many times in various places that we go to every day, we hear about expenses and investments, but do we really know what an expense is? And what is an investment? To clarify doubts, a definition is presented below.

  • Expenditure is the accounting item of money that certainly and directly decreases the benefit, or failing that, increases the loss of pockets, in the event that that item of money has come from the personal account of an individual or from a company or company (ABC definition)

According to the definition, it is understood that an expense refers to the disbursement of a certain amount of money, it can be in cash or through the use of bank movements.

Some examples of expenses to have a clearer definition are the payment of electricity, gas, telephone, and water, among others. But an expense is not only the payment of services but also the purchase of a personal object is considered an expense, such as the purchase of clothes, shoes, food, and any other personal need or taste that involves an outlay of money.

  • “Investment is the process by which a subject decides to link liquid financial resources in exchange for the expectation of obtaining benefits that are also liquid, over a period of time that we will call useful life” (Alcaide, 1992).
  • Financially speaking, an investment is any use of money in a product or activity with the aim of generating more money. Everything else is an expense. (The Home Economist)
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Now, after knowing the definition of investment, we must always keep in mind that Investing is a good decision, spending is not a bad thing either. Spending is necessary above all to satisfy the basic needs of each one. However, always keep in mind that not all spending is an investment. Learning to recognize what an investment is can be useful in preventing future economic crises.

Knowing the difference between spending and investment is essential when using money. It is of great help for making decisions that improve our economy.

It is advisable to follow a process in which spending is controlled, taking care of what and when we spend, in order to generate savings, which can later help us generate investments that bring increased income.

It is very useful to differentiate in the budget the expenses destined to expenses and the employees to the investment. For this, we must take into account that there are two types of expenses: current and capital. which have different consequences for the future and financial stability of the person who makes them. The former is consumed and has little effect on the ability to produce more resources in the future, and the latter creates wealth.

There is a substantial difference between an expense and an investment, an expense for going to the movies is not the same as for buying an encyclopedia, the first is an expense, and the second is an investment.

Below is a small table as a distinction between spending and investment.

Where do I spend or invest my money?

SPENT INVESTMENT
Stereo English course
Movie Tickets Gym Monthly Fee
drink in a cafe books for school
interior painting at home Purchase of land
Purchase of new curtains Buying a Laptop
house rent Tuition payment

Correctly taking control of our finances implies clearly identifying how much is spent or invested in each activity of our daily life.

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To maximize the budget, it is necessary to clearly differentiate between these two types of expenses, as well as to properly organize, plan, establish strategies, execute, and control the financial plan. At the same time, analyze the origin of the income to seek to increase it using new forms supported by the maximization of resources.

Differentiating the expense of an investment is the key to consistently increasing your economic capacity. When you don’t analyze how you spend your income, you run the risk of occupying your budget with concepts that will not support the future of your heritage.

Of all the aforementioned, there are certain aspects that are worth paying attention to, such as:

1. The risk of investing and not obtaining a benefit in the future: it is worth highlighting the existence of a risk component in any investment since we know the initial outlay is always true, we know for sure that we are going to have to do it, while the consideration that we expect to obtain in exchange or the flow of future liquid benefits is uncertain, both in amount and in the moment of time in which it will be available, for which reason we will be forced to make estimates. Logically, this entails a risk that must be accepted by the investor.

2. The fluidity of the financial resources used: for the purposes of the approach that will be given to the investment analysis models, these are exclusively composed of flows of liquid financial resources. In all business activity, there are two opposite sign flows:

A. The Real Flow: made up of the input and output of real goods, and B. The Financial or Monetary Flow: is made up of the input (receipts) and output (payments) of financial assets (money).

However, these two streams are not logically independent of each other; since every inflow of real goods is associated with an outflow of financial goods and vice versa, every outflow of real goods is associated with an inflow of financial goods, although in most cases these two flows of opposite sign do not coincide in time.

Also in investment processes, we can distinguish these two flows;

The Real Flow: would be represented by an INPUT of real goods to the company, (it is the so-called object of the investment) that applied to the productive process of the company, will produce an exit of goods to the market. The Monetary Flow: would be given in turn by the OUTPUT of financial assets generated by the acquisition of the object of the investment and by the entry of financial assets generated by the sale to the market of the goods produced.

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3. Not knowing how the fruits of the investment will be obtained: the definition of investment is valid regardless of the physical support of the investment, as long as there is an initial outlay, the expectation of a flow of liquid benefits futures, and a time frame; Whether it is the acquisition of a capital good to apply to the production process, or a real estate investment or an investment in financial assets, as long as the aforementioned disbursements exist, they may be treated in the same way, however, it may It should be noted that although there are general models valid for these types of investments, there are also specific models that contemplate particular aspects of certain types of investments.

After taking these points into account, it will be easier for us to recognize expenses and investments and improve our personal finances.

Conclusion

Finances are an issue of great importance for the entire population, therefore knowing the difference between spending and investment is very helpful, now you can invest and make the necessary expenses. Now it can be assumed that the expense is a disbursement of money that cannot be recovered later; instead, the investment is also a disbursement of money that can be recovered in the future, or at least what is expected, is the expectation at the time of investing.

The best thing to do on a personal level is always to invest in education since good results will always be obtained from it, and avoid thoughts in which material things that satisfy personal tastes, such as houses or cars, are really an investment because in most of the cases is only an expense as these items regularly do not reimburse the owner for anything.

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