66. What is opportunity cost?

In making any sort of decisions, it’s easy to look at the costs of choosing one thing or another. Getting a degree from a university might costs four years and tens of thousands of dollars. Renovating a home can costs hundreds of thousands of dollars and take a few years.

But in every decision, there is also an opportunity cost: by spending limited resources on one thing, you no longer have those resources to spend on something else.

What else could I do with that time and that money?

Not only does an education cost years and money; it also costs the opportunity to do something else with those years and money. You could get a job instead, and spend money on investments.

With a renovation, you could spend the money on buying a new house or just live with what you have and go to Disneyland a lot.

Often, we don’t consider opportunity costs when we make decisions, both large and small. Instead of thinking what something will cost or possible how it could benefit, we also have to consider alternatives that might cost less or lead to more benefits.

The opportunity cost of pursuing a career in writing includes the income made if you instead decide to be an engineer.

The opportunity cost of spending 20 hours a week maintaining a perfect house is the satisfaction you could have if you spent that time volunteering instead.

Look not just at how much something costs, but what the alternatives are as well.

1 comment

  1. I love this. So many times we go oh that’s a great deal I’ll buy it. But in reality there are other things we would really rather have. Pausing and choosing is really important when it comes to spending our time and our money.

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