Summary
The aim of this essay is to differentiate investment expenses, as a result, the researcher obtained the following insights: an expense and 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 help 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 contribute to the improvement of his finances.
The benefits generated by the correct use of finances, avoiding expenses and seeking investments go beyond the economic performance that it can offer to entrepreneurs, also with compliance with their Social Responsibility, that is, they generate diversity of goods and services for the community, new jobs, currency circulation, even more are a reflection of the political and economic stability of a country.
Expenses and costs
Many times in various places that we frequent on a daily basis, we hear about expenses and investments, but we really know what is an expense? And what is an investment? To clarify the doubts, definitions are presented below.
- Spending is called the accounting item of money that directly and directly decreases the benefit, or failing that, increases the loss of pockets, in the event that this item of money has come out of the personal account of an individual or a company or company. (Definition abc)
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 spending to have a clearer definition are the payment of electricity, gas, telephone, water, among others. But an expense is not only the payment of services but also the purchases of some personal object is considered an expense as an example purchase of clothes, shoes, food and any other personal need or tastes that involves an outlay of money.
- “The investment is the process by which a subject decides to link liquid financial resources in exchange for the expectation of obtaining also liquid benefits, over a period of time that we will call useful life” (Alcaide, 1992) Financially speaking, a investment is any use of money in a product or activity with the objective of generating more money. Everything else is expense. (The domestic economist)
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 every expense is an investment. Learning to recognize what an investment is can be helpful in preventing future economic crises.
Knowing the difference between spending and investment is essential when using money. It is a 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 increases in income.
It is very useful difference 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 the financial stability of who makes them. The former are consumed and have little effect on the ability to produce more resources in the future, and the latter create 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 the purchase of an encyclopedia, the first is an expense, the second is an investment.
Below is a small table as a distinction between spending and investment.
What do I spend or invest my money on?
| SPENDING | INVESTMENT |
| Stereo | English course |
| Cinema Tickets | Gym Monthly |
| Drink in a cafe | Books for school |
| Home interior painting | Purchase of land |
| Purchase of new curtains | Purchase of a Laptop |
| House rent | Tuition payment |
Proper control of our finances involves clearly identifying how much is spent or invested in each activity of our daily life.
To maximize the budget, it is necessary to clearly differentiate these two types of expenditures, as well as to organize, plan, establish strategies, execute and adequately control the financial plan. At the same time, analyze the origin of income to seek to increase it using new ways supported by maximizing resources.
Differentiating the cost of an investment is the key to consistently increasing your financial capacity. When you don't analyze how you spend your income, you risk spending your budget on concepts that will not support the future of your assets.
Of all the aforementioned, there are certain aspects in which it is worth paying attention such as:
1. The risk to invest and not obtain a future benefit: it is worth noting the existence of a risk component in all investments, since we know the initial disbursement is always true, we know for sure that we are going to have to make it, while the consideration we expect to obtain in exchange or the flow of future liquid benefits is uncertain, both in amount and at what time it will be available, so we will be forced to make estimates. Logically, this carries 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 made up exclusively of liquid financial resource flows. In all business activities, there are two opposite sign flows:
A. The Real flow: made up of the entry and exit of real goods, and B. The Financial or Monetary Flow: made up of the entry (collections) and exit (payments) of financial goods (money)
However, these two flows are not logically independent from each other; since every entry of real assets has an associated outflow of financial assets and vice versa, every outlet of real assets is associated with an entry of financial assets, although in most cases these two opposite flows do not coincide in time.
Also in investment processes, we can distinguish these two flows;
The Real Flow: it would be represented by an ENTRY 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: in turn would be given by the OUTPUT of financial assets generated by the acquisition of the investment object and by the inflow of financial assets generated by the sale of the goods produced to the market.
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 the initial disbursement exists, the expectation of a flow of liquid benefits futures and a time frame; Whether it is the acquisition of a good of equipment 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 would be possible It should be noted that although there are valid general models for these types of investments, there are also specific models, which consider particular aspects of a certain type of investment.
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 a topic of great importance for the entire population, therefore having known 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 an outlay of money that cannot later be recovered; on the other hand, the investment is also an outlay of money but that can be recovered in the future, or at least what is expected, is the expectation when investing.
It is always recommended to invest personally in education, since good results will always be obtained from it, and to avoid the thoughts that material things that satisfy personal tastes like houses or cars are really an investment, since in most the cases are only an expense since these objects do not regularly reimburse the owner.
Bibliography
- Alcaide, A. d. (November 1, 1992). Retrieved on October 14, 2014 Abc definition. (sf). Retrieved on October 14, 2014, from http://www.definicionabc.com/economia/ingresos.phpDefinición abc. (sf). Retrieved on October 14, 2014, from http://www.definicionabc.com/general/gastos.phpEl economista domestico. (sf). Retrieved on October 14, 2014, from:
