The 4 Types of *Expenses* (Of Which Only One is Bad?)

On Monday we covered the four pillars of freedom, and then lo and behold I get a press release this morning on the four types of expenses!

So of course naturally we have to talk about those today ;)

And according to Nik Halik, the person behind this press release and the co-author of “5 Day Weekend: Freedom To Make Your Life And Work Rich With Purpose” (which I haven’t read, FYI), all of these four types of expenses are GOOD except for one:

“We’re taught to believe that expenses are bad and to cut them as much as possible, but that perspective is simplistic and misguided. In reality, there are four types of expenses, and only one of them needs to be cut.”

Here are the four types he lists:

#1. Lifestyle (Consumptive) Expenses

These expenses include eating out, vacations, concerts, entertainment, road trips – pretty much any “experiences” that help you build memories and which usually involve other people. All completely fine according to Halik, so long as you do it in moderation, of course.

#2. Protective Expenses

These are the costs associated with protecting the important things in your life like your health, house, cars, businesses, etc. Which includes all the insurances you take on (auto, life, health, disability), as well as even Emergency Fund savings to protect you from having to go into debt. Also an OK bucket of expenses, and which Halik says the wealthy are actually much better about prioritizing than the middle class – probably because they have more to protect? (Or can afford to easier?)

#3. Productive Expenses

These are the things that improve your life, especially for the long term. Such as investing in your education or career, scooping up investments (real estate, stocks, bonds, etc), starting up or marketing your own business, and essentially anything else that fall under the whole “you gotta spend money to make money” adage. Another area that’s fine for spending.

So what’s this naughty expense, then???

#4. Destructive Expenses! (Dun Dun Duuuuuun…)

These are the bad boys of the group, and include all your nasty habits/vices and nonsense fees you pay, credit card debts, memberships you never use, and anything else that takes away your hard earned money without giving anything back in return. The toxic expenses, if you will. And they’re everywhere!!

I haven’t fully thought through all these expenses yet (literally just got the email an hour ago, haha…), but so far I’m digging it… You normally think of ALL expenses of being bad, so it’s a refreshing take (and reminder!) that sometimes it IS perfectly fine to spend money instead of banking it 24/7…

And in fact, I can come up with a handful of examples for each section, can you?

Lifestyle expenses — boys weekends in New Orleans, bachelor parties in South Carolina, weddings in Poland, cross-country road trips/love drops, Starbucks meetups with friends, date nights while kids are at grandma’s ;), and pretty much every single Friday and Saturday night in my 20’s! Haha….

Protection expenses — our life insurance, health insurance, renter’s insurance, car insurance, overloaded cash reserves, umbrella insurance, soon to come revised (and legit) will and testament/trust to finally get knocked out once and for all! (my trouble spot), and then all the maintenance we do for our cars or homes over the years… Pretty much making this category the LEAST fun of the group ;) At least with the destructive expenses you get an initial thrill!!

Productive expenses — books!!!, index funds, coin club memberships, yearly blog conferences, networking events, everything I pay to keep this blog up and running, soccer/basketball/tee-ball fees for kids, school supplies, camp costs, etc etc… I don’t think I’ve ever bought – or read – so many books in my life as I have these past 9 months since my epiphany… I can’t stop consuming physical books!!

Destructive expenses — traffic tickets, overpriced cable bills/cell phone bills, ridiculous investment fees, $40 bottles of water!, all the cigars I used to smoke (5 years free this 4th of July – woot woot), stupid credit card debts, lottery tickets? (I personally consider these “entertainment”, but for most they’re definitely “vices”), and then probably 800 other things I can’t recall at the moment…

Fun exercise to go through – highly recommend it! (Especially if you’re bored at work right now)

I’m not sure where stuff like food and clothing go, or even roofs over our heads (maybe “protective” since you kinda need them to survive?) but an interesting way of looking at it all for sure…

(Now watch – every time you go to buy something you’ll be trying to figure out which category it falls into! HAH!)

If you’re interested in learning more, check out Nik’s new book –> 5 Day Weekend. Again, haven’t read it yet, but the least I can do is pimp it out a little for giving us a fun topic to dive into ;)

Now go out and spend some good protective/productive money!

PS: $5.00 if you can name all 5 people in that picture up top, and *where* it was taken ;)
PPS: Links above to book are Amazon links…

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  1. Brent May 16, 2018 at 5:53 AM

    Why does #4 have to be so much fun? Just reading it made my Visa card start twitching; start planning it’s next splurge

  2. [HCF] May 16, 2018 at 5:56 AM

    While this categorization sounds reasonable I think Destructive Expenses can pop up in any of the first three. The barriers are not really distinct. Maybe just the coder (or OCD?) is talking from me, but I think a more precise statement would be to have the first three as categorization and tag some expenses in them as “toxic” based on their nature. Destructive expenses are the ones which are not adding value/happiness to your life, are unnecessary, connected to bad habits, or cause harm to you or your environment in any other way.

    1. J. Money May 16, 2018 at 9:26 AM

      True true – any expense can be toxic depending on how you treat them. Except for anytime someone gives ME money – then it’s 100% good 100% of the time :)

  3. Kate May 16, 2018 at 6:07 AM

    Fincon 2012 (thank you “save” Pinterest function!). I couldn’t get the people, and should get back to work!, but stalking around the net trying to match faces had made me stumble onto a load of blogs I don’t yet discovered!
    In other news, using YNAB has made me so aware of my Destructive expenses that I think I’ve knocked them all on the head. Who wants to input £8.50 on a pack of cigarettes?! Not me! (quit date: January 31 2015)

    1. J. Money May 16, 2018 at 9:41 AM

      GOOD FOR YOU!!

      (And your wallet/health :))

      Yes to the pic coming from Fincon years ago… It’s a bunch of us $$$ bloggers from back in the day – including myself there in the middle!

  4. My Sons Father May 16, 2018 at 6:11 AM

    My biggest destructive expense is sugar (candy and other sugary treats). It’s like I’m paying to slowly kill myself. I like the idea of labeling it a destructive expense, that might help me make healthier choices, both for my physical health and my financial health.

    1. J. Money May 16, 2018 at 9:52 AM

      “It’s like I’m paying to slowly kill myself. ” – hah!!! That statement alone will help me curb it today- thanks! :)

  5. Mike at Balanced Dividends May 16, 2018 at 6:59 AM

    Interesting concept. Admittedly, I also view all expenses the same, but I guess I also consider the return of those expenses (so basically the same thing as thinking of an experience I get in return, etc.).

    Also, the “Dun Dun Duuuuuun…” tipped me off this was the bad one… :)

    But shouldn’t there be two more Duns in there? “Dun Dun Dun Dun Duuuuuun…” sounds more appropriate for this evil type of expense.

  6. Jason@WinningPersonalFinance May 16, 2018 at 7:32 AM

    I have to disagree with the premise here. I don’t think you can call lifestyle or protective expenses good. They can be. Spending on experiences can be rewarding. Insurance may be necessary too. But you can easily go too far on either. If you need $500K of term life, buying $2M of whole life is a bad expense. I can hire a bodyguard but that would be a waste too. Nobody cares enough about me that I need a bodyguard.

    Spending on what you get the most value from while keeping youself on track to accomplish your goals is good. Not everything that fits into the buckets above counts as a good expense.

    I also think it’s terrible to consider an investment an expense. It’s much easier for me to prioritize buying equities as savings for future me. By calling it an expense you are comparing it to a consumable that would give more short term joy.

    1. J. Money May 16, 2018 at 9:59 AM

      All good things to think about for sure :) That’s actually why I like posts like this so much – it gets you to stop and think for a bit and challenge your views. Glad it sparked a strong reaction from you!

  7. FullTimeFinance May 16, 2018 at 7:39 AM

    The categories are thought provoking but, I don’t believe all items in any given category are good. Moderation seems to be key to every category. Over insuring can be bad for protective. You can over invest in yourself for productive. Of course you can go overboard on lifestyle.

  8. Ms. Frugal Asian Finance May 16, 2018 at 7:54 AM

    Interesting categorization. Whether it’s a good or bad expense, we try to minimize it to the max or eliminate it altogether if possible.

    I think the definition of good and bad might make people think it’s ok to spend on “good” expenses, which is true, but sometimes those expenses are totally unnecessary like brand name clothes or fancy restaurants.

  9. Lily | The Frugal Gene May 16, 2018 at 7:56 AM

    Oooh this is new. I haven’t heard of that before. I do try to move our expenses to being productive. However, sometimes I make my dining out expenses almost destructive according to my husband. But it’s really protective because when I’m full = not grumpy. :P

    1. J. Money May 16, 2018 at 10:00 AM

      Haha… food does solve a lot of problems, I’ll give you that :)

  10. Leo T. Ly May 16, 2018 at 8:20 AM

    Really? Buying a lottery ticket is a destructive expense? What if you win the powerball?

    The way I see it, any expense can be in one category at the start and move into another if you over do it or neglect it. For example, if you have a gym membership and you never go, it’s a destructive expense. If you go three to five times a week, it can become a protective expense to protect your future wealth.

  11. Ramona @ Personal Finance Today May 16, 2018 at 8:38 AM

    Some of our spending can be considered good (stuff for our 4 year old), but, since she already has too much clothing and way to many toys, we try to limit this and see it as, not destructive, probably, but still not useful for our long time goals :D

  12. Mitchell Walker@The PouchPlan May 16, 2018 at 11:12 AM

    Don’t we just love list! The general agreement seems to be the list is ok, but missing several key components and lacking in depth. When I help people with their budgets, we use 3 categories of spending to consider adjustments. 1, Have to. 2. Need to. 3. Want to. Easiest to adjust #3, more difficult to adjust #2 and really hard to adjust #1. Based on the above, I have been missing the obvious one of “Don’t want to!” Actually, the I don’t want to probably could appear in any of the 3 groups I currently use. A new subgroup has been established for the PouchPlan!

    1. J. Money May 16, 2018 at 4:27 PM

      I like it :) Nothing wrong with keeping it super simple!

  13. Lisa May 16, 2018 at 11:35 AM

    Smoking cigars led to me meeting one of my best friends (and it’s cheaper than drinking). Also, as I tell everyone, as a rich and healthy Asian woman, if I don’t have some vices, I risk living forever.

  14. Kate@OnOurWayWorld May 16, 2018 at 2:27 PM

    Ohh.. great list. At first I thought “Lifestyle Expenses” were going to be the bad one, and I was going to throw down a little, there ;) because I’m all about balancing chasing FI and enjoying the trip the whole way. But… you nailed it. I need to go through my expenses now and see if there are any more destructive expenses to kick out.

  15. B.C Kowalski May 16, 2018 at 2:46 PM

    I guess I’m piling on here but I don’t think that’s a good way to think about expenses, particularly for someone interested in frugality/FIRE. As others have pointed out, any of those categories could be healthy or destructive.

    I think the lifestyle category is the most dangerous — very easy to inflate without thinking about it. Items in the destructive category are usually short, one-time fixes or mistakes. But lifestyle inflation requires almost constant scrutiny because opportunities to spend money frivolously pop up all the time and they often come with the most social pressure.

    To me the categories are pointless. More important is to evaluate each item of spending and determine if it’s providing maximum value for minimum dollar amount (and if it fits within your budget!). A good example: I just signed up for a full-day photography seminar with a National Geographic photographer for $75. Since photography is part of my day job as well as an occasional side job, and since I happened to have met the photographer and know him to be skilled and easy-going, I know this will be a good value for the money. Spending that $75 on a new gadget I would forget about in a week, or even a night out, likely wouldn’t carry nearly the same value, even though the money is the same.

    1. J. Money May 16, 2018 at 4:29 PM

      Very cool use of $75! Love that it hits multiple areas of your life too vs just one.

  16. Grettman May 17, 2018 at 4:57 AM

    They are all destructive if they aren’t used in moderation and you lack due diligence. (for instance, over paying for insurance).

  17. Steve May 17, 2018 at 3:13 PM

    I like seeing expenses broken down this way. I too believe that the only “bad” expenses are the destructive ones. I also agree with some of the comments that living expenses and protective expenses CAN be bad (but I also believe we shouldn’t really be scared of them either!)

  18. Prudence Debtfree May 18, 2018 at 1:56 AM

    For people in too much debt (and that’s most people), I see room for a few tweaks: #1 Lifestyle expenses – Cutting out even good quality visits with friends where it involves spending $ is a tough but really effective move. #2 Protective expenses – One of the reasons the wealthy are wealthy is that they do prioritize this. Those of us who aren’t as wealthy would be wise to follow their lead. #3 Productive expenses – In the balance between paying off debt (even what might be called “good debt”) and investing, debt repayment needs more emphasis in our society. #4 Destructive expenses – no tweaking necessary:)

  19. Bernz JP May 22, 2018 at 10:37 AM

    When I play golf 3x/week, my wife thought it falls under destructive expenses. I always thought it was more lifestyle and productive. I think it can only be classified as destructive when someone purchases those expensive golf clubs every time a new one is out. And I do not do that! Love this post.

    1. J. Money May 22, 2018 at 10:49 AM

      It’s definitely in the eye of the beholder for sure, haha… I’m sure there’s things she does that you would find “destructive” too which to her is not :)

  20. Primal Prosperity May 22, 2018 at 2:48 PM

    I know what you mean about the physical books. Sometimes I think I might be addicted to reading. :) I haven’t purchased a full priced book in a long time though. Between the public library, the free library, and some used book stores, I’m set. However, as far as industries that I like to support, the local, independent bookstore would be at the top. :)

    Have you read “Living with a Seal”? I HIGHLY recommend it. It is a truly laugh out loud read, and it is a quick read. I almost finished it in one day. Also, it combines thoughts on minimalism, productivity, entrepreneurship, health & fitness, etc… The author is a multi-millionaire who runs ultras, but feels in a rut, so he hires a Navy Seal for a month. The author’s wife is the woman who started Spanx (now on Shark Tank part time). I think you would really enjoy it.

    Also, since you like the ‘zero waste’ movement, you may also like the book “Plastic: A Toxic Love Story”.


    1. J. Money May 22, 2018 at 3:23 PM

      oh cool!! thanks for both recs – love the sound of both!

      (and yes to physical books!!! they’re gonna make a comeback, just wait!!)