In terms of personal finance, it doesn’t get any simpler than income and expenses. Personal income represents the amount of money you’re able to draw in; typically this is a person’s salary. Expenses, on the other hand, are any purchases that a person makes. This can include everything from rent and groceries, to streaming services and office supplies. Subtract your expenses from your income and you’re left with your net income, or the amount of capital you have available to spend or save at your discretion.
Conventional wisdom would seem to indicate that there are two ways to bolster your net income. Either, you can make more money, or you can reduce your expense sheet. However, the reality is that cutting expenses won’t always help you save money in the long run. In fact, cutting some expenses could actually hinder your financial progress. We’ll explain here:
Investments vs Expenses
There are two ways that a person can actively choose to spend their money. Either they can spend it on an expense –– a product or service that will not appreciate it value –– or they can invest it in something that can become more valuable with time. The problem is that many people don’t consider expenses and investments differently, even though they should. To wit, halting an investment in a business that is about to take off won’t improve your financial standing. In point of fact, it’ll leave you missing out instead!
Essential Expenses
Let’s divide expenses even further. The reality is that the average consumer spends their money on a variety of different products or services. Some are more beneficial than others. For example, it’s imperative that a freelance writer have access to products like a laptop, headset, and WiFi router. While these products won’t become more valuable with time, they serve a vital purpose all the same. Without them, a freelancer won’t be able to do their job, and thus, make money.
It’s worth noting that not all essential expenses will produce a direct return on investment. Consider another example. Say you’re feeling unwell, and you’re concerned that you may have an infection. In such a scenario, it’s imperative to visit a local testing clinic and speak to a medical professional. (On that subject, you can find a Same Day STD Testing clinic in most major cities.) If you don’t, you could end up compromising your health and well-being. And no amount of money is worth that!
The Bottom Line
The key to forming a more cogent budget isn’t to drastically cut your monthly expenses, but instead to become more conscious of your spending habits and to make better decisions. Doing so will allow you to spend capital on products and services that will improve the quality of your life and enable you to bolster your financial position moving forward.