If you are in business or investments, it’s quite likely you heard the saying that “money needs to be put to work”. As the expression says, to generate more earnings, money needs to be invested to create value and in consequence, higher earnings.

However, some “investments” are actual expenses that bring no actual economic value, even if it seems that they do. As business owners, it’s advisable to avoid falling into that trap as many resources can literally fly away if not acting carefully. One of my favourite anecdotes is when some people come to me showing me they’ve acquired the “latest smartphone” for the business. Actually you can use almost any item as an example, but I’ll stick to the smartphone.

Probably, the latest smartphone will be faster, will have more storage and better picture quality. However, in order to analyse whether it’s a good investment or just squandering money, we need to take a look at it from the perspective of the concept “Return on investments” or ROI. This concept basically claims the more returns an investment can offer, the better. If there are no returns or these are very little, it was not a good investment, especially if you lost money in the end.

The same happens with the latest smartphone. Maybe it can offer an incredible image quality, but if your business doesn’t require you to take pictures because you end up buying them from an image bank, and you don’t even have any intention to use them beyond taking pictures when you go on holidays, (that if you use your phone for personal purposes as well), probably you have paid for a feature of your phone that will not bring you actual value. These resources could have been better put to use in something else.

With this, of course, I don’t mean that getting the latest smartphone is a bad idea. You can get even get it if you simply like it. However, the idea is that believing that paying for a high quality is going to bring you benefits when they will actually not. The opposite could happen, for example, for a business owner that needs high quality images for her activity. Not investing properly in equipment or software that can improve the quality of the image would probably make the business owner less competitive.

What is the solution? Sometimes it’s better to evaluate properly is what we want is actually worth it. It won’t be most of the time a right or wrong solution, but learning how to be aware of what we’re doing, what the consequences are and potential risks that may arise will help us make decisions with a better judgement.