Opportunity Cost

"Opportunity cost is the value of the next best alternative foregone as the result of making a decision." as defined by wikipedia.org

Do you ever think about your own personal finances with an opportunity cost mindset? Even if you did now what the term was called I'm guessing you did. If you create a budget at the beginning of every month you decide what you will do and not do with your money for the month. This is the same thing. If you go to make a purchase and you say to yourself "If I buy X then I will not have the funds to pay for Y". That my friend is analyzing the opportunity cost of your purchase.

We have had to do a lot more opportunity cost analyzing lately because of buying a fixer upper house two years ago. All of the funds we have put into the house has meant that some other want or need has been sacrificed. By installing a new well, boiler, remodeling the kitchen and bathroom, updating electrical and phone along with gearing up for a new roof we have had to make a lot of tough decisions and sacrifices. There are lots of things we would love to do with our money other then spend it on our houses mechanical needs however we had to make a decision. Which was more important, a house with running water, heat and no roof leaks or a trip to France, cool paint colors on the walls along with a new couch? I know that we gave up a lot of wants over the past two years because of our needs. This was tough and we sometimes whine about our plight in life. However, we are grown ups. We made the decision to buy a fixer upper really cheap and then over time spend the money we saved fixing it. I know we made a very wise investment that will pay off for us in the end, but right now I really love to be in the south of France to see it's spring beauty. So for now I just keep reminding myself that it was worth the opportunity cost of running water to miss out on a spring time trip to the south of France.

What are some of the hard opportunity cost decisions that you have had to make lately?

photo from about.com


Angie said...

We had to give up a trip to Disneyland with the kids in order to pay for oral surgery that our insurance didn't cover. I had the surgery last week, and I have to say, Disneyland would have been a lot more fun!

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