Difference Between Spending and Investment

The fundamental difference between expense and investment is the expected return of each of them. While in the investment it is expected to obtain a return 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 so with the aim of obtaining a higher return or benefit in the future, be it in a few weeks or even in decades. Investment, contrary to what is believed, is not only associated with economic or financial criteria, but rather is everything that allows a subsequent improvement in exchange for using resources today. In this way, an investment can be making a bank deposit (in exchange for interest), an investment fund or stock market (getting money) or creating a company (getting money and/or work). But it can also be studying for a degree (with the aim of going further and having better conditions), learning a language or buying better technical equipment to produce more.

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

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

Expense and investment example

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 that house or land can be revalued, and we can sell it in the future. This case would be a clear example of expense, if initially we do not want the house to invest (speculate), or speculation if we buy the house with the idea of ​​selling it at a higher price later.