Today, we’re going to dive into the realm of economics! Woohoo!
WAIT DON’T CLOSE THE WINDOW YET. I promise it won’t be that boring! We’re just going to discuss the concept of opportunity cost, and how it applies to – well, pretty much everything in life. From motherhood to minimalism, time management to finances – knowing the concept of opportunity cost is useful in more ways than I can count!
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How I Discovered Opportunity Cost
I’ve always said that for every class in college I took, I remember, on average, one thing.
Which means for every class I have a great memory of, there is some class where I see it listed on my transcript and think, “Wait, I took that?”
I could still make stuff out of clay, thanks to the class on pottery I took, but despite my chemistry class, I can never remember the difference between a proton, neutron, and electron. Don’t bother trying to tell me in the comments, it won’t stick.
One of the things that did stick came from Agriculture Economics. It was a pretty basic introduction to economics, but instead of regular goods, we talked about cows and corn.
One day, Bryan (our professor; technically he was Dr. Oetting, but we referred to all ag professors by their first name) brought up the idea of “opportunity cost,” and it has been something I’ve thought of with regularity since.
What is Opportunity Cost?
The basic principle of opportunity cost is, how else can you use a resource?
The resource may be money, time, or something else. This concept can apply to literally anything.
Let’s say you unexpectedly get $100. Woohoo! What’s your first instinct on how to spend it?
You could hire someone to come clean your house (trading your money for time). You could go to the mall and have a shopping spree (trading your money for material goods). You can treat your spouse to dinner and a movie (trading your money for experiences). You could put it into investments (trading your money for the promise of more money).
But you only get to choose one of these. Once the money is gone, it’s gone.
Going out to dinner and a movie might be a fun, memorable experience. But it won’t pay off in your investment account.
Opportunity Cost and Time
I really like to think about opportunity cost in terms of time.
Let’s say I have an hour. I can clean my house. I can read a book. I can do some work for my clients. This is a choice I make on a nearly daily basis, every time my toddler takes a nap.
Cleaning my house benefits me because I am less stressed when my house is clean.
Reading a book gives me self-care time. That’s nourishing to my soul and makes me happy.
Doing client work might not be glamorous but it feeds my family. I appreciate that.
Usually, I choose based on (a) how difficult this would be when my daughter is awake, and (b) what do I need the most?
Some days, the best thing I can do for my mental health is to do something that benefits my soul. If I’m behind on client work, I might need to get that done first. There’s always a balance.
When you’re looking at how you use your time, ask yourself what would have the biggest impact right now?
Opportunity Cost in Daily Life
Now you can start considering the other things you can do with your time.
I could spend my time scrolling through Facebook, or I could spend that same time reading a book on my phone.
I could spend my time watching a movie, or I could spend the time cleaning up the house.
You are not lesser than because you choose one over another. If you need to spend the time vegging in front of the TV, that’s fine! We all need the chance to relax and not have to think about things. But if you find yourself feeling guilty because you’re scrolling on Facebook instead of folding laundry, that might be the time to reassess your opportunity cost. Remember – time is a finite resource. Once it’s gone, you’re not getting it back.
At the end of your life, if you could look at the number of hours you spent playing on your phone, are you going to be satisfied or upset?
Opportunity Cost and Emotion
You can even apply this concept to emotion. Have you ever attempted to nurture a “friendship” that ultimately did nothing but drain you?
We’ve all had those toxic friendships. It may be the other person is just a constant source of negativity, who drains you down rather than lifts you up. It may be that you’re the one putting all the effort into maintaining the friendship.
You only have so much “emotional bandwidth.” Instead of wasting that on people who are giving nothing back, nourish the relationships that can give you something back – happiness, fulfillment, joy.
Opportunity Cost and Parenting
This is a great lesson to start teaching your kids from a relatively early age.
Of course, kids are all about immediate gratification. If they can spend $2 and get candy now, they don’t think about saving their money for the toy they want. But as they get older and they think more about what they can do with their resources, teaching them about the ways they can use their money, time, or other resources, and how to be considerate of those things, is a great lesson to learn. Teaching children to be good stewards of their resources pays off.
Using the Concept of Opportunity Cost in Everyday Life
How can this concept apply to your everyday life?
The next time you’re tempted to throw something in your cart just because it’s cute, consider the opportunity cost of the item. There’s a monetary cost – the price you’ll pay for it. There’s a space cost – the area it will take up in your home. There’s a time cost – the time you’ll spend cleaning it or caring for it. There can even be an emotional cost.
Women who have a cluttered home have higher levels of cortisol. Too much stuff literally causes stress. By considering the opportunity cost before you purchase an item – the long-term impact it may have – you’re going to stop some of it before it starts.
What about when you’re doing something out of a sense of obligation? That’s an opportunity cost on your emotions, your time, and possibly other things.
Opportunity Cost and Intangible Things
What about when it comes to intangible items?
I’ve always been passionate about learning. I’m a huge e-course junkie. Thanks to buying bundles of courses, I have far more courses than I can possibly take, which means every time I open a new course, I have to consider the opportunity cost.
How will this pay off for me? When I took Get Chaos Organized for Mom Bloggers, I traded time and money for the promise of future time (via better organized systems and time management) and eventually, being able to earn more income that way.
When I take a course about how to clean my house, I’m letting the time invested pay off in time saved down the road because I’ll be more efficient.
Opportunity cost still applies when it comes to intangible items, provided you use the knowledge you acquire.
I hope this helps you consider where you’re putting your resources – your time, your money, your emotional energy.
We’re only given so much life – we have to be careful how we spend it.