Thursday, 2 December 2010

Why most expensive items should not be called investments (Part 3 of 3)


The fundamental economic difference between assets and expenditure lies in the use that we give to items, not in the accounting rules regarding depreciation and tax deductions. A laptop computer to play video games is a consumption item, unless you get paid for playing those, for instance, because you write reviews for a video-games magazine.

The consequences of this principle are wide-ranging and encompass all fields of our lives. Being conscious of the difference can help you, for instance, to buy your clothes more efficiently, to discard worthless investment proposals quickly, and to reduce the cost of starting your own company.

Misunderstanding what truly constitutes an investment results in the waste of enormous sums of money every year. Do not fall into that trap. Not every big-ticket item is an asset and not all inexpensive purchases are consumer goods. When you make decisions, you will be much better off if you weigh each element according to its veritable nature.

[Text: http://johnvespasian.blogspot.com]

[Image by Al Ianni under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]

Why most expensive items should not be called investments (Part 3 of 3)


The fundamental economic difference between assets and expenditure lies in the use that we give to items, not in the accounting rules regarding depreciation and tax deductions. A laptop computer to play video games is a consumption item, unless you get paid for playing those, for instance, because you write reviews for a video-games magazine.

The consequences of this principle are wide-ranging and encompass all fields of our lives. Being conscious of the difference can help you, for instance, to buy your clothes more efficiently, to discard worthless investment proposals quickly, and to reduce the cost of starting your own company.

Misunderstanding what truly constitutes an investment results in the waste of enormous sums of money every year. Do not fall into that trap. Not every big-ticket item is an asset and not all inexpensive purchases are consumer goods. When you make decisions, you will be much better off if you weigh each element according to its veritable nature.

[Text: http://johnvespasian.blogspot.com]

[Image by Al Ianni under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]