It’s a rare day that you don’t spend money.
Sometimes you spend without giving that swipe or tap a second thought; other times you pause to ponder if you should or shouldn’t make that purchase. But there’s no doubt about it, there’s a cost to your lifestyle – whether it’s modest, extravagant, or somewhere in between.
Here’s what I wonder: How do you determine if the price of something is an expense vs. an investment?
Is it based on the product or service? Is it based on the dollar amount? Is it based on whether you’re paying cash or using a credit card? Does it matter if it’s something you need or something you want? Or, are other factors at play?
However you answer, in truth it’s all an expense from an accounting perspective. Ultimately, the item will show up on the expense side of your income statement.
But, how healthy is it to have an “expense-only” mind-set?
If you view everything that costs money as an expense, what’s the likelihood that you’re missing out on an opportunity for growth?
I had to ask myself this question this week when weighing the pros and cons of whether to attend a conference this fall. After doing my “t-account” method of evaluating the tradeoffs and talking it through with a few people, I made the decision not to be “penny wise and a pound foolish” and concluded the expense is actually an investment. So, I’m going.
Within hours of reaching this decision, I was on the other side of this consideration. Yep, a prospect is weighing whether working with me is an expense or an investment.
Before our sales call ended, I asked, “How will you back into your decision?” At first, she didn’t have an answer. But the more we talked, the clearer it became that she does have a decision-making process.
This didn’t surprise me because we all have our way of reaching decisions and determining if the price is an expense or investment.
It’s just that you’re not always attuned to what the components of that process are for you.
So, here’s a quick weekend exercise:
- Think about the purchases you made this week – both small dollar amounts and the large ones. Which did you make without thinking twice, and which made you pause a moment?
- Think about the purchases you’re thinking of making in the next month, 3-months, 6-months, 12-months. What’s the reason for the timeline – are you saving up for it; are you waiting to achieve a particular goal; are you waiting for an event to happen?
- Regarding the purchases you’re considering, what are needs-based purchases that are related to your survival; what are want-based purchases that may contribute to your growth and satisfaction – personal and professional?
- Who are the people you consult with before making a purchase you’ve tapped as an investment?
Whatever you’ve written down (and you did write this down, right?), reflects your decision-making process.
It also reveals if you view everything that costs money as an expense. If it turns out that you do, I hope you’ll consider doing this less often. Because it is with an investment mind-set that you tend to make more strategic and growth-oriented decisions.
p.s. Did you catch this piece I contributed to on Reuters this week?