In the world of personal finance, investing is only one aspect. It is, however, an aspect that I talk about frequently and am very passionate about. There is a lot for one to learn about investing and it’s something that will be a life long pursuit as far as I’m concerned. There is one thing though that you should understand right from the beginning. What exactly is an investment?

I’m sure I’m not the only one who has heard the term thrown around quite a bit. I’ve also heard it used to describe a very large array of things. So, in order to figure things out, let’s take a look at some definitions.

A Few Definitions

Investopedia defines an investment as:

An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price

Wikipedia doesn’t really have a succinct definition, but it is very similar to the above definition from Investopedia. It also makes a distinction between the economic and the finance sense.

Many of you may also have heard the definition of an investment given by Robert Kiyosaki, the author of the book Rich Dad, Poor Dad. He basically says that an investment puts money in your pocket, and anything that takes money out of your pocket isn’t an investment.

What Do I Think About It?

I see valid points in both of these definitions. I’m not going to say that all investments “put money in your pocket” or at least not right away, but I do strongly agree that anything that takes money away from you without a promise/hope of a return is not an investment.

Many people will argue about whether certain things are investments, the most controversial probably being one’s own personal residence. I see valid points for both sides of the issue, but I tend to disagree that your home is an investment. I have, however, turned my own house later into a rental property officially making it an investment.

Mostly, I take issue with what I consider to be the improper use of the word investment to describe consumer goods. I’ve heard people repeatedly tell me that it’s alright to buy such and such because it’s “an investment.” When I bought my washer and dryer, I had a friend tell me that they were an investment. I don’t really see how this could be the case, but I wasn’t going to go off in a rant about it.

My point with all of this is that I see too many people justifying their consumer purchases by making themselves believe that they’re investments. I hate to rain on anyone’s parade, but furniture is not an investment. Neither is a new big screen TV or a fancy stand mixer. I don’t have a problem with people buying these things, as long as they understand that they’re buying a consumer item and not an investment.

I’m not going to give you a be all end all definition and description of what an investment is, but I do think that you should give it some serious consideration and thought for yourself. You’re going to want to understand for yourself what an investment really is so that you’ll know one when you see it. You don’t want to have to take someone else’s word for it, when determining if you’re going to invest.

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