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Responsible expenditures

Published Oct 28, 2024 10:39 pm

It is unfortunate that many people struggle to act responsibly when it comes to managing their own finances or, even worse, when spending other people’s money—particularly in organizational roles where they have been appointed or elected. Undoubtedly, it is much easier to spend money than to earn it. For some individuals, it becomes all too simple to be generous and carefree with funds that belong to others.

First and foremost, whether or not the funds have been entrusted to you, it is your fiduciary duty to fulfill your responsibilities. If you lack the experience or skills required for the position, you should either decline the role or seek assistance from more qualified individuals who can help you perform your duties effectively. It’s also important to understand your priorities and the purpose of your expenditures. Generally, expenses can be categorized into four main areas: maintenance, capital, investment, and non-essential items.

Maintenance expenditures for individuals and households typically cover living expenses such as food, clothing, rent, and education. For companies, these expenses include essential costs needed to sustain operations, such as salaries, utilities, and other operating expenses. However, it’s important to consider that not all maintenance expenses are necessary. Is that level of quality or luxury truly needed, or could something more basic or older suffice?

Capital expenditures refer to large investments in items that are expected to be used for an extended period and can often be justified as necessities. For instance, a family might genuinely need a car to transport parents to work and children to school. The key question is: what budget is justifiable for the car? This budget would depend on various factors such as the size of the family, the company’s car policy, and the parents’ job positions. For businesses, acquiring new equipment or facilities typically requires a project feasibility study or a cost-benefit analysis to justify the expense.

Investments may be viewed by most people, including companies, as something that is out of mind because there is nothing left to invest. The key is to find a way to set aside some funds for investment. This investment should ideally generate a return, providing an additional source of revenue and serving as an emergency buffer as well as a nest egg for retirement. When making any investment, several factors need to be considered, including the rate of return, the associated risks, the duration (tenor), liquidity, and alternative options available.

Finally, non-essential expenditures are purchases that may be nice to have but won’t kill you if you don’t get it. When considering your spending choices, think about whether you really need a new car or a luxury vehicle. For example, ask yourself if it's necessary to buy a new Mercedes, go on a month-long cruise to Europe, or celebrate your anniversary in a grand ballroom. While these expenses can provide instant gratification and create memorable experiences, it might be wiser to prioritize long-term investments, such as saving for your own home.

It is truly disheartening when decision-makers choose to spend money solely because it is available. They often justify their actions by pointing to others, creating an imaginary need, or complaining about existing facilities that require upgrades or replacements. Typically, responsible expenditures come from decision-makers who had to earn the money themselves, while those who spend the most often have little or no role in generating the wealth they are using.

(The views and comments of the author are his own and not of the newspaper or FINEX.  Dr. George S. Chua was 2016 FINEX President, 2010 to 2020 FPI President, an active entrepreneur, regular member of the National Press Club, Professorial Lecturer 2 at UP Diliman and BGC, Vice Chairman of the Market Governance Board of the Philippine Dealing & Exchange Corp. and loves playing golf.  Comments may be sent to [email protected] or [email protected]

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