Item #27: Life Opportunity Costs

When I was in university, I started out as an Economics major (that changed very quickly, but that’s another story). A concept that intrigued me and has stuck with me since those classes, is that of Opportunity Cost; it’s an economic concept, but, for me, it has always been just as much a life concept.

'Opportunity Cost' technically refers to the actual ‘cost’ of one decision over another. So if you have $1000 and you decide to spend it instead of save it, you lose the interest you would have acquired had you saved it.

Opportunity Costs, however, are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs. (wikipedia.org)

In my mind, these are the more important (more life, less economics) components of Opportunity Costs: the qualitative ones, the emotional, personal costs.

Here’s how Life Opportunity Costs work:

▪ You have $1000. You can decide to spend it or not. There is an opportunity cost with every decision, worth evaluating.
▪ Let’s say you decide to spend it. Well that’s $1000 gone, money that could’ve been saved. Had it been saved, you would’ve accrued interest. That’s the obvious monetary opportunity cost.
▪ But had you saved it, you might have felt a bit more responsible for having made the restrained choice. Had you saved it, you’d have lived through denying yourself immediate gratification, which may or may not give you a sense of personal satisfaction. Had you saved it, you would’ve had a nest egg in event of emergency need. You might’ve felt an increased sense of life comfort knowing you have that nest egg. This nest egg might have made you feel more liberated in your workplace, a little less constrained by the power of the paycheque. This feeling of liberation might’ve given you more confidence, might’ve helped you take more risks at work. Those risks might have made the difference between careful work and brilliant work. That nest egg might’ve grown to eventually tide you through a period as you made a great big professional leap to something new and wonderful.
▪ The Opportunity Cost of the decision to spend that money is: cost of lost interest, yes, but also, cost of lost potential sense of greater responsibility, cost of lost potential personal growth experience of denying immediate gratification, cost of lost nest egg, cost of lost potential sense of comfort. The cost of behaving differently at work and potentially shaping a different professional path.

Here’s another way that Life Opportunity Costs work:

• You have a job and you have a dream. You have to decide whether to be happy with the job or chase the dream. There is an opportunity cost with every decision, worth evaluating.
• Let’s say you decide to stay at the job, be thankful for what you have and work hard. You like your job, it pays you well, you know the people, and it’s close to home. You let the dream go in favour of keeping your feet firmly planted on the ground. There doesn’t initially appear to be much opportunity cost here, but there is always an opportunity cost with any decision.
• So even though staying with the job seems like the decision with the least financial opportunity cost, what is the opportunity cost in giving up a dream? Will you be able to happily progress through this life, pleased with your grounded choice? Or will the dream gnaw away at your insides, eventually stripping your face and your step from the smile and the spring that the pursuit of the dream might have inspired? Will the denial of the dream make you cranky and even incompetent in said job with time? Will the things you once thought you could enjoy in life (friends, family, neighbours, sunshine) come to carry with them the tarnish of an abandoned dream? Will it colour your glasses with a grey film that filters over every aspect of your life?

I’m not suggesting any of these outcomes would be the outcome of an evaluation for everyone, or for you. But every decision in life, big or small, has Life Opportunity Costs, worth evaluating.

Think relationships: What’s the opportunity cost of abandoning a relationship i.e.: if I leave it, what is lost? Of sticking with it i.e.: if I stay, what is lost? Think parenting: What’s the opportunity cost of this parenting decision i.e.: if I 'discipline' now, what is the cost? If I don’t 'discipline' now, what is the cost? (*discipline not meant to suggest punitive behaviour, only respectful guidance.)

This is the ‘Life Opportunity Costs Model of Decision-Making’. Let me know if you try it.