Good Expenses Vs Bad Expenses

Whether poor or rich, single or married, in your early 20s or retired, everyone has expenses to live day-to-day life. No matter your minimalistic life, you will have some unavoidable expenses. Though it is not possible to eliminate the expenses, there is always a way to optimize these expenses. Also, there are some expenses that you do not need to eliminate. These are called good expenses. If there are good expenses, then there are bad expenses as well. Let’s back up a bit before going into the details of good and bad expenses. As discussed in What is F.I.R.E. post, the goal of F.I.R.E. is to build passive income streams to take care of your expenses. So, the expenses incurred to build and maintain these passive income streams are considered “good expenses.” All other expenses that do not contribute to generating passive income streams are considered as bad expenses. For example, mortgage payments for a rental property are considered “good expenses,” whereas mortgage payments for your house are considered bad expenses. Going with the definition of good and bad expenses, you can categorize all your expenses into one of these two categories.

The definition of bad expenses may initially sound a bit upsetting, as expenses such as grocery or utility bills also become bad expenses. The very first thought that will come to your mind is that this is nonsense, as no one can live without these absolutely essential expenses.

However, if you remove emotions from this definition, it will make sense. Ultimately, bad expenses are those that one seeks to cover with passive income streams. So, the phrase “bad expense” won’t sound that bad once you look at everything from this perspective.
Good expenses are pretty straightforward. They are all the costs required to build or grow your passive income stream.

Some expenses may be hard to classify as good or bad. For example, spending money on learning a new course or skill may not generate any passive income directly or may not directly influence your passive income streams. You can make your own sound adjustment to classify such expenses.

In conclusion, bad expenses do not mean that they must be entirely eliminated. They suggest that they are your target for achieving F.I.R.E. Ultimately, F.I.R.E. is when you stop actively working for your bad expenses.