I could likely begin every one of these posts with “I’ve learned (or am learning) the hard way the following, just a head’s up, don’t be me. This is certainly true of this lesson that I have to learn and relearn and forget for long stretches and then re-relearn. Opportunity costs are sneaky, they are hidden, they are likely not even possible to imagine until we get into adulthood. But every time we choose one thing or action (or not choose that same thing) we are forgoing the potential of the alternative(s) to that action/thing. This is not something trivial to overlook.
For me, it is clearest when considering investing. If I put my money in a savings account I am getting a steady stream of income and that investment has FDIC insurance to back it up. But I am missing out on implicit or even explicit protection from inflation. I am also forgoing any gains in currency strengthening. Further I am forgoing opportunities for greater gain or loss that equities or even corporate bonds would provide. There are real opportunity costs associated with the ultra-safe investment of a bank savings account. We could look at the trade-offs of any of the other investments listed above instead of a savings account, but I can tell your eyes are glazing over already.
A potentially more useful way to consider the above is to think of everything as having tradeoffs. Some of the most important tradeoffs (to me at least) involve issues that affect safety, time, and money. I think of this as my personal quality triangle. A quality triangle is the relation between quality, cost, and schedule for a project (I think). You can squeeze any one of the three and even sort of squeeze one of the remaining two, but not all three. It must remain a triangle. All the angles need to sum to 180 degrees, sorry. I can’t build it by tomorrow for a buck and make it perfect.
I can easily get caught in the “I need to make it totally safe with multiple layers of back-up contingencies AND I am terrified if it costs too much (because that in and of itself is a safety threat to me!) so I unwittingly sacrifice time. I can go down rabbit holes for days to squeeze out a little extra safety or save a few bucks….but the whole time I am trading away time. I am not going to be able to do this forever. I am no longer 32 or even 42 and someday soon I will say not even 52 (and hopefully lots of other larger numbers than that eventually!). But what am I giving up by over optimizing? Is there any real difference between 99.95% sure and 99.8% sure? What is it worth in time or money? How much time do I want to spend trying to find a discount code online for something or clipping coupons for pennies? The answer of course is itself time-dependent. And here we come to the next concept I like to consider, my personal billing rate.
What is my time worth today? More than it was 20 years ago and less than it will be (God willing) 20 years hence. The value of everything is derived from the impermanence of life and the relentless march of time. What is my time worth? Sure seems like at least $20/hr and likely not more than about $100/hr. Let’s just say $60/hr. Those seem reasonable values. When I was in college and had much less money but much more time left on the planet my billing rate would have been much lower, though I likely didn’t even think in this way then.
What are other ways to consider opportunity costs, where might they be hiding? Buying a new car instead of a used one (or vice-versa). Going to college. Marrying that special someone. Exercising. Getting a vaccination. Voting. Deciding to not send out holiday cards this year. Not calling your best friend. Every time we decide to do something, choose one thing over another, or simply get out of bed we are forgoing the potential of the myriad of other things we could be choosing. We won’t even touch on the debate about whether free will exists. I’ve seen some good arguments both ways!
Where are your opportunity blind spots? They may cluster. For me they tend to be a locus of topics borne from the false belief that time is infinite. My left hip sure seems to try to remind me often of the fallacy of this logic. Thank you left hip. What is your left hip? And what might it be reminding you to consider?
