Recognizing Your Opportunity Costs

Every decision you make forces you to pass up one opportunity to pursue another opportunity.  The opportunity you pass up is the opportunity cost of choosing the other opportunity.  There will rarely be a case where you don’t have to sacrifice one thing to get another.  That’s where you have to weigh the opportunity costs and make a choice.  For instance, is a sure thing worth more than getting a shot at achieving your dreams?  Or is getting that chance, even if you don’t achieve it, worth more?  Whether you consciously recognize this decision-making process or not, you are doing it every-time you make a decision.

So how do you guarantee you make the right decisions?

Simply put, you can’t.  You cannot expect to always make the right decisions.  Sometimes, what seems like the right decision may in fact be the wrong decision, or vice versa.  Nevertheless, what you need to do first is think long and hard about what it is that you actually want out of life.  You need a vision.  You can think about this in a number of ways but I would suggest thinking as big as possible.  If you could have your perfect life what would it look like and what would you need?  Where do you want to live?  How much money do you need?  Do you want to get married?  Do you want to have kids?  Do you want to travel?  Do you want to have flexible work hours?  Do you want to be financially independent?  Be as specific as possible but realize you can always change your mind later.  This may or may not be an easy exercise but it is an extremely important step in this process.  Once you’ve figured out what you want the rest of this process becomes pretty simple, relatively speaking.

Now that you have a vision for your life, you can recognize the opportunity cost of your decisions.  Every decision from here on out must must be weighed against that vision and must also get you closer to that vision, otherwise, it’s a waste of your time, energy and resources.  For instance, if you wanted to lose weight to become healthier and more energetic, do you think going out every night drinking and partying would get you closer to, or farther away from, that vision?  Obviously, it’s getting you farther away.  That’s a pretty simple example but illustrates the concept.  The opportunity cost of going out drinking and partying every night, is not being able to lose weight in order to have more energy and live a healthier lifestyle.

So that’s all it comes down to.  To minimize your opportunity cost plug your decisions into the sentence below.  Keep in mind that “cost” does not necessarily mean money but rather the measure of what you will be giving up.  This could be measured in dollars but does not have to be.

The Opportunity Cost Decision Making Question:

If I do X will this get me closer to, or farther away from, the vision for my life, Y?

If you ask that question and the answer is “no” then don’t think any further.  It doesn’t matter how good of an opportunity it may appear to be, if it doesn’t fit into your vision then it doesn’t matter and you shouldn’t do it.  In other words, the opportunity cost is high.  On the other hand, if the answer is “yes” then you should get started right away.  The opportunity cost is low, so the sooner you get going the better.  What most people often miss is making their every day decisions based on the path to their goals.  They expect that one day they will just achieve what they’ve always dreamed of achieving as long as they work hard.  Honestly, that is foolish and stupid.  You need to have a plan and you need to have a purpose.  Nobody just wakes up one day and achieves their life’s vision without first putting in the work and effort it takes to get there.  Once you have a vision you can then create a plan.  The important thing is that the plans you create must always be made with the end in mind.

This is no guarantee that your vision will come true if you operate this way.  But I can promise you it won’t if you don’t do this.  So this is your only option.  To know your vision.  To keep that vision in the top of your mind at all times.  And to make every decision in your life based on reaching that vision.  This will keep you with laser-beam focus and will assure you the best opportunity to achieve what you’ve set out to achieve.

Happy Wednesday!

(Chad)

2 comments so far

  1. […] You can easily measure how serious you really are about something by how much you are willing to give up in order to have it.  While the thought of having to give something up, in order to let something else in, might spark some fear in you, accept this because it is a natural response to change.  The first reaction to change is always to resist.  The real problem arises when you let this resistance and fear make the decisions.  Stay focused on what it is that you really want.  Make you decisions based on positive things, like what you want, as opposed to negative things, like fear.  And remember, you should also consider the cost of not letting go – this is your opportunity cost (you may find it helpful to read about how to Recognize Your Opportunity Cost) […]

  2. Jason on

    In the Oppurtunity Cost Decision Making Question, where X maybe greater or less than Y, does that still mean that A+B=C???????


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