Difference between spending and investment

The fundamental difference between spending and investment is the expected return on each of them. While the investment is expected to achieve 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 greater profitability or profit in the future, whether in a few weeks or even decades. Investment, contrary to popular belief, is not only associated with economic or financial criteria, but is everything that allows for subsequent improvement in exchange for using resources today. In this way, an investment can be to make a bank deposit (in exchange for interest), an investment fund or stock exchange (obtain money) or create a company (obtain money and / or work). But it can also be studying a career (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, clothing or the like, we do so because we have the need to feed or dress respectively or simply the desire to acquire these components. We cover needs today, we don’t expect to get ex-post performance.

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

Example of spending and investment

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 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 on.