Difference between expenditure and investment

The fundamental difference between expenditure and investment is the expected return of each of them. While the investment is expected to achieve performance in the future, the expense is the simple use of a good or service in exchange for a consideration.

In other words, when we invest, we do it with the aim of obtaining greater profitability or benefit in the future, either in a few weeks or even decades. The investment, contrary to what is believed, is not only associated with economic or financial criteria, but it is all that allows a subsequent improvement in exchange for using resources today. In this way, an investmentcan be to make a bank deposit (in exchange for an interest), an investment fund or stock market (get money) or create a company (get money and / or work). But it can also be to study a career (in order to go further and have better conditions), learn a language or buy better technical equipment to produce more.

On the contrary, an expense is intended to satisfy a need or desire. When we buy an ice cream, clothes or similar, we do it because we have the need to feed or dress respectively or simply the desire to acquire such components. We cover needs today, we do not expect to obtain a performance afterwards.

However, there may be cases in which both terms can certainly be confused or both definitions are optimal for the same event.

Let’s look at an example to understand it better.

Imagine a case in which we spend money to acquire a house or land. With these, we intend to cover our housing needs or the desire to have a better home, however, it is true that this house or land can be revalued, and we can sell it in the future. This case would be a clear example of spending, if we initially do not want housing to invest (speculate), or speculation if we buy the house with the idea of ​​selling it at a higher price later.

by Abdullah Sam
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