Alternatives to the Word "Money"

The term investment implies that we expect a purchase or expenditure ultimately to be worth more than we pay for it. We expect a return on our investment that is greater than the investment itself. For example, suppose a company spends $30,000 training you for a position as account manager. The company will consider that as an investment and expect you to generate more than $30,000 in profits as a result of your being hired and trained. Sometimes return is easy to determine. A certificate of deposit, for example, might pay 5% interest, or have a 5% return.

Sometimes the return on an investment is expressed in terms of time, such as an investment with a two-year return or a two-year payback. This means the investment is expected to break even in that amount of time and represent a profit after that. Let's say you buy a new piece of equipment for $3 million. You predict that the equipment will produce additional goods that will earn $1 million profit per year. Assuming that all the goods can be sold and your projections are accurate, the break-even point on the $3 million investment is three years. For decision-making purposes, the machine is expected to pay for itself in three years.

Get used to speaking in terms of investment, rather than spending. When you ask for a new computer, refer to it as an investment and your boss will be less likely to view it as just another expense. Begin to see your income and training as an investment that your company is making. You may be more likely to find ways to produce a measurable return.

Referring to something as cost-effective means the financial benefits outweigh the expenditure. Typically, we look for the most cost-effective way to operate, to maximize the return on our investment. For example, if you need to take a picture in Portugal, hiring a local photographer to do the job may be more cost-effective than flying the company photographer and crew there.

Capital usually refers to a large amount of money that is used or going to be used at one time. Examples of capital expenditures are purchasing a building, buying major equipment, and acquiring a new company. A company may have capital that is readily available or may need to borrow it. Typically, capital expenditures are treated differently from other expenses. Companies often have a separate budget for these items and designate only certain people to authorize capital expenses. Generally capital expenditures appear in a separate category in financial reports. As you make requests for purchases, you need to be aware of these differences. Sometimes funds are available for capital expenditures but not expense items, or vice versa.

Many times the terms expense and cost are used interchangeably. Expense has several connotations. Technically, it is a cost that is "used up" in an accounting period. Paper used in an office is an example of an expense. For tax purposes, we like to expense everything we can to decrease our tax liability. In other instances, expense has a negative connotation as something that decreases profits.