Let’s talk about opportunity cost. Whether you are familiar with the term or not, most people forget to consider it when making financial decisions. And opportunity cost, when not considered, is silently sapping away at your financial future.
Opportunity cost is defined as the loss of potential future gains when an alternative is chosen. Let’s say you make a decision on a smaller, less risky move in the present. There are typically moves that would produce better results over the long term that you’re not able to act on because of that short-term decision. It can be hard to define because the results are sometimes unknown, but it’s important to consider nonetheless.
Let’s look at an example from my life: how is taking a private jet instead of flying commercially a good financial decision? The cost difference is absurd. You might look at that cost and think it’s obvious that you should save some money and fly commercially, but what’s the opportunity cost? Speed and energy matters. The time and energy sapped by flying commercial (an estimated 2-3 hours of added time each way) is worth enough as it is. And even beyond the dollar amount of that time, what else could I do with it? I worked out, I spent extra time with my wife, I recorded a podcast episode, and I worked on a webinar. The gains from each of those range from substantial to priceless, and those have to be factored into the decision-making process.
The next time you go to make a decision, think about: what will I miss out on in the future by making this decision now? What will I gain in the future if I make this choice? Your financial future depends on you playing the long game. Don’t box yourself into a corner for some immediate benefit.