What if I said this one thing wouldn’t take much time? Would you be interested? I think so! Here it is: Define Your Opportunity Cost.
We commit, we spend, we react, based on the moment. If we don’t have a comparison benchmark – an Opportunity Cost, then the cash flowing out simply makes sense at the time. But what if you were to stop and ask yourself “What if I did XX with the money instead?” Opportunity Cost is the cost of doing something else with the money you are about to spend. Now you have a benchmark for comparison. This helps you to determine the VALUE you get by spending the money or diverting it to XX. Here is an example.
Defining Opportunity Cost
Let’s say you’ve been wanting to save $100 a month and just can’t seem to do it. Defining your Opportunity Cost looks like this:
- $100 equals 2 dinners out at $50 each
- $100 equals 1 pair of shoes
- $100 equals 4 pedicures
It is of course based on your own expenses, since it varies by personal taste and geography.
Using Your Opportunity Cost Looks Like This:
- It’s winter, so I don’t need as many pedicures. If I only get 2 a month, that saves $50.
- I currently eat out every Friday and Saturday. So, if I decreased from 8 to 6 dinners out a month, that saves another $50.
Benefits of Smarter Choices
- Deliberate Choices – just another meal out OR $50 in savings.
- Choices are Measurable – so you can easily compare.
- Control – you decide which is most valuable.
- Reduced Anxiety – you gain control and tackle one of those “shoulds” in life – saving more.
- It Saves Money – which is sheer motivation and reward. You’ll feel great.
One small change in your life for 2018 will give you more power over your life. Try it. I’d love to hear how it works for you.
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