To understand how expenses work it is important to understand the role that expenses play in the broader economic and financial system. Although we do not always feel its benefits, the financial system is one of the most important inventions of the modern world. The financial systems works hand in hand with the global economy to provide the quality of life we enjoy today. The financial system’s main job is to move funds from savers to borrowers. This allows borrowers, both businesses and individual to make purchases and investments they need. The financial system works to determine both the amount and cost of the funds available in the system. When funds are readily available and cheap, people will borrowers more and spend more. When funds are not as available people borrow less and spend less. Therefore, the cost and availability of funds in the financial system has a major affect on the economy.

The purpose of the global economy is to allocate scarce resources, such as natural resources, workers, and funds, to the best possible use creating the products and services we enjoy in our daily lives. Said another way, the global economic system takes inputs of natural resources, workers, and funds and creates the outputs of products and services. In return for this flow of outputs there is a flow of payments. This can be pictured as a circular flow between producers and consumers. People provide labor to businesses and governments by going to work. In return, the businesses and governments they work for pay them funds as their wages. People, then go out and spend the wages they earn on products and services that are produced by businesses and governments, the amount of funds that people do not spend on goods and services become savings. The funds that flow back to the producers provide the input that allows them to produce more goods and services. This creates a cycle that drives the global economy.