In my previous post, I began to look at the four types of expenses focusing on lifestyle and protective expenses. Here’ll I’ll examine productive and destructive expenses, the third and fourth types of expenses.
Productive expenses allow you to build assets, to expand your cash flow, and to grow your business. Such expenses could include purchasing a tax lien or rental property. If you own a business, it could be hiring a great employee. It might be an expense like education, whereby new opportunities are opened for you.
The 5 Day Weekend includes these expense where, if you put a dollar into them, more than a dollar comes out the other side, and investments that create cash flow and appreciate in value.
These are expenses that are going to enhance your life now and in the future—not something that will dissipate, like a consumptive expense. They may have a liability attached to them, like a mortgage on a rental property, but by incurring them you’re in a better overall position. For the 5 Day Weekend lifestyle these types of expenses should be increased and enhanced as much as possible.
Destructive expenses include consumer debt, overdraft fees, and unnecessary expenses such as a gym membership you don’t use or loans that lead to debt. In a general sense, these are expenses that take value away from your life instead of adding to it. These can include expenses for vices and weaknesses like drugs and gambling. These are the expenses that should be cut and eventually eliminated altogether.
When you understand the difference between true debt and mere liabilities, you begin to see that in many instances the way to become wealthier is to increase, not decrease, your liabilities. The cost of purchasing a tax lien, for example, is a liability. But it comes with an asset that can make you more money than it costs. If you think all liabilities are the enemy, then you’d never understand how you can safely and wisely borrow to produce.
Remember: Your goal isn’t to simply “get out of debt.” That’s just one piece of a much bigger puzzle. Your goal is financial independence and the 5 Day Weekend.
In my next post, I will look at how important it is to plug your cash flow leaks to boost your income.
I’d love to hear from you. Do you have any destructive expenses – such as an unused gym membership – that you need to get rid of? And what about productive expenses? Thank you for sharing.
Secure your copy of the “5 Day Weekend” book. 5 Day Weekend: Freedom to Make Your Life and Work Rich with Purpose [Nik Halik & Garrett Gunderson]