Your Capital Expenditures

When corporations need to buy something for their business, a purchase can be divided into two categories: 

• Capital Expenditures (CapEx): A purchase that will last over a year

• Operating Expenditures: A purchase that will last under a year

Companies conduct CapEx when the purchase will provide an economic benefit to their business:

• Apple buying land and building an HQ outside of the US

• PepsiCo building a new factory that specializes in low calorie products 

• Amazon buying a fleet of 200 Rivian delivery vehicles to bring down fuel costs for their delivery operations

Each of these purchases have a few things in common, they’re rather large, they’ll last the company over a year, and the company will use these assets to improve their business. 

You too will make capital expenditures in life: 

• Buying a house near better schools

• Buying a car to make room for more family members

• Buying a business to generate wealth for yourself

The key learning here is: business’s are ruthlessly restrained when conducting capital expenditures -- they balance the costs and expect an outsized benefit. Be the same way. Spend big only when you can expect a positive return. When the benefits are smaller or less clear, be more reserved with your wallet. 

And remember, returns don’t always have to be monetary, they can come in the form of future cost savings or peace of mind.  

When it comes to purchases of the heart, it pays to lead with the head. 

PK

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