How Much Does that Really Cost – Opportunity Cost

When people hear the term opportunity cost they are transported magically back to their tenth grade economics class. Their eyes start to glaze over as they enter their mental time accelerator and wait to emerge on the other side of the “conversation.” Now I know no one wants to sit around and talk about opportunity cost, but it hits you where it counts so listen up.

Opportunity cost is really just what it sounds like. It’s an opportunity that you were cost by doing something. If the term was “dollar cost” I’d be talking about the number of dollars you had to give up to get something. If it were “Oreo cost” then it would be the number of Oreos you had to forgo to acquire an item. Ten Oreos might equal roughly three servings of cookies (okay okay, one awesome serving) and could maybe get part of your economics homework done for you.

So what is the opportunity cost of spending money? It’s the opportunities you must give up in exchange for an item. Opportunities? You mean there are other things I could do with this money other then make this one purchase? Of course! Let’s say for example you want to buy a $100 Obama collectors edition “fighting for change” action figure with freedom lightsaber. Twenty minutes ago (if you’re a slow reader) you would’ve said it costs $100, but now you’ve got to think a little harder about the opportunity cost.

Buying posable Obama costs you anything and everything else in the world you could do with $100. What about spending that money on a lawn guy for a month or two? Now it’s costing you 4 Saturdays of grass covered labor. Or what if it were an awesome date with your spouse? What about investing it for retirement (yawn)? Well now we’re really getting into some higher level opportunity cost thinking.

The point isn’t to make you feel guilty every time you spend money thinking of all the other things you could do with it. The point is to be aware of each dollar you spend knowing it’s true cost. President Obama costs a lot more then $100. It’s $100 + a date with your spouse + mowing the lawn for a month. If you add all those things up and you still want to buy it, awesome. Go for it. I hope it’s worth a fortune someday. But most times you’ll find the trinket you’ve got your eye on just isn’t quite worth the opportunities it will cost you.

What awesome, once in a lifetime purchases have you passed over recently in the name of opportunity cost?

For those who think $100 is a small price to pay for an Obama action figure, here you go

(Photo Credit)

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