Wednesday, September 28, 2011

Difference between Investing and Expense

A lot of individuals and business owners do not really know the difference between expenses and investment. This is the common mistake that many of new business owners and individuals don’t realize.  Let's define expenses; it lets money out of your pocket but it is important to conduct business, like mobile phone, telephone, office supplies, power and a lot more. Now, let's define investment; it lets acquire money in your pocket, like advertising, business meetings, networking and a lot more.

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Investing vs. Expenses for your Business

Before taking action in buying or paying something, ask yourself first “If it is an expense or investment?” For example, hiring someone to work in your office? Instead of hiring someone to work for you, you’ve decided to do all the work for yourself and thinking that hiring people will only add up to your expenses. This may be right, but you must also analyze the situation. What if you need to meet clients for expansion of your business? And you are too busy doing much work in your office. Always remember that “Time is Gold” you must learn to leverage your time.

Instead of doing all the jobs in your office, try to do some math and analyze the time that you might lose to find more client than wasting all of your time and effort doing all the office works. You don’t just need an employee to grow your business; you also need to invest on equipments for better production if needed. You also need to consider moving in a better and larger place soon.

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Investing vs. Expenses for Employees

For individuals who work as an employee and what to start investing for their retirement. You can also apply this system of asking yourself first “If it is an expense or investment?” For example, buying a house and lot or a condo unit and you were convinced to pay it on a monthly basis by a real estate agent. Sounds like an investment. But what if you were laid off at your job after a year and you don’t have any savings to pay all the monthly amortization. It’s either the unit will be repossessed by the bank or sell it at a lower price to save some of your money that you’ve paid for the unit.

Instead of buying a house and lot or a condo unit first, why not strengthen first the roots. Save money first in your bank, in this case your money is earning some interest but not that big. Try investing some of it in time deposit where your money will earn much interest than a regular savings account and roll it over or try putting up a business with small capital. Until you see that the interest on your savings are enough to pay for the monthly amortization of your dream house. Then it’s time for you to invest in buying houses and lot or condo unit and it’s like owning it for free, because you are paying the monthly amortization from the interest that you earn from your savings.

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