Opportunity Cost

Do you ever justify a purchase? Do you think to yourself, I worked hard this week, I deserve this purchase. Or, you might think about how you did not go out to dinner and a movie with friends last week, so you can buy this expensive coat. I justify purchases. Often it is that I should not purchase a specific item, either because we do not need it, or because I believe it is too expensive. Other times, I tell myself, if I purchase this, I will not purchase something else. Or, if I do not purchase something I can save for something better later.

A few weeks ago, I finished reading: “Decisive: How to Make Better Choices in Life and Work” by Chip Heath & Dan Heath. There was a quote that resonated with me:

“‘Opportunity cost’ is a term from economics that refers to what we give up when we make a decision. For instance, if you and your spouse spend $40 on a Mexican dinner one Friday night and then go to the movies ($20), your opportunity cost might be a $60 sushi dinner plus some television at home. The sushi-and-TV combo is the next-best thing you could have done with the same amount of time and money. Or if you love both shopping and hiking, then the opportunity cost of a Saturday afternoon at the mall might be the forgone opportunity to hike through a nearby park.” page 42

Is that how you make decisions in your life? Do you ever think about the opportunity cost for the choices you make? It is not always a bad way to make decisions. Chris and I spent a few years feeling stuck in the condo we owned. We knew we could not sell it due to the year we purchased it and the market, so we stayed put and continued to save for our future. Last fall we saw a window and found a house we fell in love with instantly. If we had not spent all those years saving, we would not have been able to make the move into our current home. I look at that as our opportunity cost. We stayed in a home for a few years and saved in order to now live in a home we love. It worked for us.

Is that how you look at money and decisions? Is it easier to have the opportunity right in front of you now, so you can see the instant gratification? Does that help you look into the future, or is what you want right now the only way to live? If you are diligent today, tomorrow, and the next day, could that give you more options in a few years? Yes. I can tell you that waiting often gives you more options, but not always. We have to listen for what makes the most sense in each situation. It will be different for everyone.

What do you think?

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