Be careful when you think of your spending as an investment. It’s tempting to label big purchases that way, but the truth is, when you spend money, it’s gone. Whether it’s remodeling your house or splurging on a luxury item, you should be realistic about what these expenses truly are.
A reader once asked me why I felt guilty about spending money on home renovations if it’s an investment. I used to comfort myself by thinking I was making smart financial decisions when writing large checks for my home improvements. But taking a break from spending made me realize how risky it is to justify every expense as an investment. Investments are supposed to yield returns, and there are no guarantees with most spending.
Initially, I hoped that spending $100,000 on my house would add at least $200,000 in value. I breezed through the first $60,000 because I was caught up in the potential return on investment. Now, with only $40,000 left, I’m being much more careful to ensure the work stays within budget. If I hadn’t paused my spending, I’d likely have overshot my budget significantly.
Often, people assume that any money poured into their home will fetch a return of more than 100%. That’s a misconception. Realistically, areas like kitchens and bathrooms might recoup 80%-90% of the investment. The rest could be chalked up to the joy you get from using the updated space. Only in very high-cost areas might you see returns exceeding your investment, due to high property values and income levels.
People also tend to overspend on material things, mistaking these purchases for investments. For instance, a friend thought buying a high-end designer bag was an investment in her professional image. However, looking too affluent in an interview can actually be a disadvantage, and she didn’t get the job.
Similarly, spending money on expensive clothing to appear trim can be less effective than investing in health through diet and exercise. Fancy labels won’t fix deeper issues like poor health.
Another example is education. We often hear that education is priceless and worth every penny. However, the reality is that with the resources available online today, anyone can access high-quality education for free or at a minimal cost. The prestige of attending an elite university may not justify the enormous expense, especially considering the debt many students incur.
So, before you justify any big purchase as an investment, whether it’s a car, a degree, or a home renovation, think carefully. Try to understand the true cost and the real value it will bring to your life. Not all spending is bad, but misleading yourself about why you’re spending can lead to financial missteps.
