What is Consumer Expenditure and Investment Expenditure?

We spend our income on different types of expenses. Through our income, we can buy experiences or can create assets or can just spend on unwanted desires. The choice is ours. We should understand the pattern of our spending. There are two types of expenditure we do normally. We can categories them as Consumer Expenditure and Investment Expenditure.

Consumer Expenditure is spending we usually do for living life. This Expenditure can be

Basic spending is done for satisfying our basic needs food, clothes, shelter, education, transport and basic entertainment.

The second type of expenditure can be lifestyle expenditure. Lifestyle is a way of life established by society, culture, group or individual. This includes patterns of behaviour, interaction, consumption, work, activity and interests that describe how a person spends their time. The scale of Lifestyle keeps on increasing day by day. And we try to keep pace with this new lifestyle. Nowadays under the name of Lifestyle Expenses, we keep on spending on unnecessary things. We think these expenses are mandatory to keep our Status intact.

These both types of spending is called consumption spending which are done to live life in a better way.

Investment expenditure is a spending done to create assets both Fixed assets and liquid assets.

Fixed assets such as

  • House,
  • Land,
  • Commercial space,
  • Plot or
  • Agriculture land etc.

Liquid assets means

  • Shares and Mutual Funds,
  • Government bonds and NSCs ,
  • EPF, PPF, NPS Or
  • Fds and Rds etc.

Investment expenditure helps us to create long term as well as short term assets which help us to achieve our small and long term life goals. One should strike a balance between consumption expenditure and investment expenditure.

Many of my clients have an endless list of lifestyle expenses. I always try to influence my clients to be prudent in their expenditure. I help them to understand what is Need and what is Want. I keep highlighting how expenditure might affect the chances of the family being able to fulfill some other financial goals.

There is a difference between wasting money and spending money. You just need to identify thine line between these two!! You need to understand the trade-offs !!

Does consumption and investment expenditure always defer? No..

Some outflows like providing education to children may appear to be consumption expenditure . But it may be a useful investment, if the children do well and are able to raise the family income.

When you spend money in upgrading your skill and self education is can be considered as investment expenditure even thought it comes under consumption spending as it will help you to generate more income in future.

Any capital expenditure done for advancement in technology and equipment which help you save your time and energy and increase your efficiency as term as investment expenditure

Such expenditure needs to be prioritized because these spending ultimately helping you to increase your income levels.

How to keep balance between consumption expenditure and Investment expenditure?

Many times because of lifestyle pressure from peers, friends, relatives and family we tend to spend at lot. It ultimately increases our consumption expenditure. Inflation too makes negative impact on investment expenditure as we hardly able to save much if income remains stagnant. In this situation a well drafted monthly and yearly budget will help to strike a balance between these two expenditures by following ways . A budget

That clearly demarcates mandatory and legal payments such as taxes, contribution to provident fund and gratuity and loan commitments

Essential living expenses such as food and shelter and discretionary expenses such as lifestyle expenses

will help allocate income better between current and future needs. It is always better

To allocate savings for goals before considering the discretionary expenses. This will make sure that future needs are taken care off.

SIPs, specially when automatically transferred from the salary,help in prioritizing the investment expenditure.

Transfer your targeted saving amount into other saving account and they do necessary spending. Always follow Income-Savings = Spending

If you follow common sense in spending, stick to your saving percentage and control your gratification and greed on sales and discounts you can surely make balance between consumption expenditure and investment expenditure.