Why do people have the habit of increasing their expenses?
By SinfulRose
@SinfulRose (3527)
Davao, Philippines
February 3, 2012 7:40am CST
I just don't get it...
In financial accounting, individuals and companies have four important columns that will determine their financial status. Assets; Liabilities; Income; Expenses.
Assets can be anything that will generate the individual/company money. This is something that should be maximized. Liabilities are the debts of the individual/company. This is something that should minimized.
In the income column, one can see how much one earns monthly/daily. While in the expense column is the monthly/daily disbursement of money of the individual/company.
Focusing on the individual identity, let me give an example...If a person buys a book. Usually people nowadays use credit cards or their own salary. Thus, purchasing a book becomes a transaction under the expense panel.
Why can't they use the money generated in their assets panel instead, so that they won't have anymore credits/debts anymore?
5 responses
@bounce58 (17385)
• Canada
4 Feb 12
That's just human nature I think. Even if their income column would grow, through raises or change in jobs, or business; their expenses column would also grow. Sometimes even faster than the income column. Thus people accumulate a lot of debt.
Ideally, people should just spend way below their income column to increase their assets!
@SinfulRose (3527)
• Davao, Philippines
5 Feb 12
I don't think it's human nature...rather, I think it's more on financial ignorance.
Let me explain, a promotion does not necessarily mean a more abundant life. Because the higher the position a person have, the more responsibility he/she has...the more work he/she has which makes his/her salary not enough to pay his/her efforts.
Next, the higher the person's salary is, the higher is his/her income tax. A person should have the self-discipline too to minimize his liabilities and expenses enough that his income can sustain his expenses and he still has enough cash-in-hand left to buy himself assets that will help pay off his expenses. This is the basic of surviving in this society we have now, right?
@yanzalong (18987)
• Indonesia
4 Feb 12
It depends on the individuals. If the person is merely an employee, he or she can not use the money generated from his assets (a house or a car that he has) unless he sells it. So, salaries are the only souce of income to be used to finance his life.
@SinfulRose (3527)
• Davao, Philippines
5 Feb 12
A house or a car is not an asset if it only eats up a person's money due to maintenance and other stuff that make a person lose his money. Those things becomes a liability if that is the case...Is this your case, yansalong?
A person can be an employee but still have a business of his own, in other words, a person can be one or all of these things: Employed, Self-employed, businessman and/or investor. It only depends on the person what he wants to be.
But each role mentioned above needs a certain level of financial intelligence to be able to say he is such a person. Example, if a person only knows that by earning income is just to get a secure job and work hard, he's an employee only. But if that employee also knows more on how to earn money and passive income, that person can either be one or all the persons mentioned above.
@bellis716 (4799)
• United States
4 Feb 12
It has been about 30p years since I kept the books for a company , and they were very simple. I only had to keep track of income and expenses. At tax time, I let the CPA take care of assets, depreciation, and such .
For my personal finances, I put anything that I buy that costs over $5.00 on our credit card, which we pay off completely as soon as we get the statement each month . At the end of the fiscal year, we get a statement that shows how much we spent for the year in each category: groceries, gasoline, eating out, utilities, clothing, tools, and such. The monthly statements that we receive list each individual charge, where and how much. We keep each receipt until the statement comes in at the end of the month. At that time, we com pare the charge tickets against the statement. This system has been very satisfactory for us.
@SinfulRose (3527)
• Davao, Philippines
5 Feb 12
Congratulations on your achievement!
Hope you didn't encounter much problem last international market crisis...
Have you also turned to look into your assets and those that can generate you passive income?
People right now should learn more and invest their time in their financial intelligence to help them in their daily lives and their future.
I also have a feeling that all trouble in the market hasn't ended yet...
@beamer88 (4259)
• Philippines
3 Feb 12
If I understood you correctly, we should draw from our assets to pay for our expenses so that our liabilities would not increase. We only decrease the assets. Why can't we draw from our income to pay for the expense so that our assets wouldn't decrease? That's the reason why I didn't pursue a career as an accountant :)
@SinfulRose (3527)
• Davao, Philippines
5 Feb 12
You got my point the first two sentences...but you missed by the third. And to make things clear, I am not an accountant or an accountant disciple, I study how to make money and how to make it work for me.
People usually pay their expenses from their income panel which generally only comprises of salary earned by working for another person (or not to be rude, making other people rich instead). Thus, instead of paying themselves first when they receive their salary, they are paying other people.
@GbSb19 (26)
• Philippines
4 Feb 12
It's on the expense column to simplify our accounting, in other words to make things as simple as possible and not complicate them. Profit = income - expenses, calculate all your expenses (buying a book) and subtract it to your income (generated by your assets) and you will get your profit. We should really take control of our liabilities and daily expenses because if we didn't it's a disaster.
@SinfulRose (3527)
• Davao, Philippines
5 Feb 12
I know that accounting formula...sadly, 
many people don't.
Many people can't seem to manage their liabilities to the minimum. If they have large liabilities/monthly expense, they should at least know how to make their assets/income bigger than the expense/liabilities to get the proper form of profit, no?