Spend vs invest – striking the right balance

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Buying a well made suit to wear to work – is that spending or investing?

If you are like me, one of those people who struggles with the balance between when is a good time to spend hard earned cash and when is a good time to invest for a rainy day, then this is for you!

What is spending? Spending1 is paying out or disposing of money, wealth or resources. It is also the employment of labour, thought, words or time on some object or in some proceeding.

What is investing? Investing2 is putting money to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.

It seems from the above definition spending and investing are similar concepts but one is a disposal and the other is putting it to good use. An investment can also on occasion sometimes be defined as spending with a purpose or higher expectation.

Let’s look at the economy, the statement “we are going to spend $2 billion on another stimulus package” would be considered to be spending as it is the disposal of money. However, if we rephrase this to read “we are going to invest $2 billion in infrastructure and our children”, it is clearly implying an investment as it is putting the money to good use.

How about the stock market? Most people would consider stock market activity as an investment with a time horizon. Buying a home is a long-term investment whereas short selling on the stock market is a short-term investment.

So is spending money on a home investing? My answer would be ‘investing’ when house prices are increasing, however, if prices are decreasing is that still investing? 451 Old Pacific Highway, Mooney Mooney Creek is a waterfront acreage on the Central Coast.  The initial asking price was $1,550,000 a couple of years ago, it is now asking $895,000- a decrease of 42%. (Source: SQM Research). With such a steep decrease in profit is this considered spending of hard earned cash to live somewhere nice, or investing in the hope the market goes back up?

Everyone thinks about spending and investing differently and the balance is going to be vary based on your individual situation, goals and tolerance to risk.

Are you interested in a discussion about getting your balance right? Why not contact our office and make an appointment with a financial adviser? We would love to hear from you!

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Further Reading:

Spending vs. Investing: Sometimes, There’s a Difference By: Derek Thompson, Senior Editor, The Atlantic (http://www.theatlantic.com/business/archive/2011/06/spending-vs-investing-sometimes-theres-a-difference/240846/)

1. http://dictionary.reference.com/browse/spend
2. http://dictionary.reference.com/browse/invest?s=t

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