Home Investing An Expense is not an ‘Investment”

An Expense is not an ‘Investment”

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picture of truck

Don’t call expenses “investments.”

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An expense is something that predictably loses value over time. Even if it is used to increase earning potential, it is still an expense.

That new car is not an investment. Even if it enables you to get a better job, or if it is required by your company so you’ll present a better image to your customers, it’s still an expense. It’s something you buy to increase your earning power, but because it depreciates in value it is an expense.

An investment is something you purchase with the expectation of increasing value, such that you may liquidate (sell) it later on, or something that directly produces income (i.e., rent or dividends) such that the income plus the final value exceeds the initial value.

So buying a truck that enables you to operate a moving business can be an investment even though it is a depreciating asset, because it directly produces income (that should be greater than the depreciation).

Buying a truck to haul your sound gear to gigs is an expense rather than an investment because it is incidental: you aren’t being paid to haul your gear from place to place; you’re being paid to use the gear and hauling it there is an incidental expense (overhead) that’s not a line item on the invoice.

You might own your primary home, but it should be considered an expense rather an investment. That’s because the primary purpose isn’t to increase in value; instead it is to provide shelter. Viewing a home purchase as an expense rather than an investment can totally change your mindset when you go to purchase, and also how you live in your home. Rather than buying the most home you can finance, you buy the least home that meets your needs. Rather than maintaining the home to preserve the resale value (which means you’re really doing it to please the next, unknown buyer), you maintain and improve it so it pleases you.

An expense is not an investment.

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