So Many Shoes, So Little Money – Blog

Opportunity Cost

May 5th, 2009

Since you have a finite amount of money with which to make decisions, every decision has consequences. Opportunity cost is what you might be giving up with each decision you make. So consider what something is really costing you – today and in the future. The good news is that opportunity cost is not really a number so, no math. Rather, it is a set of alternatives. For example, if you stay in a less-than-fulfilling relationship, you may be giving up the opportunity to meet a new, more compatible person. And, obviously, if you purchase an outfit at Juicy Couture, unless you have an unlimited shopping budget, you give up the opportunity to purchase something even cuter at Urban Outfitters. In finance, opportunity cost refers to the price you may pay in lost opportunities by choosing one alternative over another. So it behooves you to think about the opportunity cost as you weigh decisions.

As a Fashionista you think about this every day. If I skip dinner for a week or two to pay for those boots, will I be too wiped-out to enjoy wearing them? If I skip on cosmetics to support my Starbucks habit, will I drink my coffee alone? If I use my rent money to buy a whole new wardrobe, will I have a closet to put it in? Opportunity costs loom large in such decisions.

Filed under: Money Management

Tags: spending