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What is Opportunity Cost?

Opportunity cost sounds like a dry topic, but it is a concept that can be applied to many aspects of daily life. I recently found a quote from a famous author and realized that it applies to life, business, economics, opportunity cost, and just about every other aspect of our waking moments.

For every opportunity you missed, you got something else in return and for anything you got, something else was lost. These are Ralph Waldo Emerson’s words that succinctly summarize the concept of opportunity cost. This quote means a lot to many people, as it’s a great way to view life itself.

This is a simple lesson, but a very powerful one. If you realize that what the opportunity cost is before making a decision, this helps greatly in taking a ‘calculated risk’. If you do not know what the cost is, making a decision can be costly.

What opportunity cost really amounts to is this – for everything we do, we miss out on opportunities to do something else. For every opportunity we lose, there is some other gain we have experienced from the path we took. For every opportunity we take, there is another we passed up. Opportunities may only knock once, and we must choose which one to accept. Even if you choose not to do anything, you have made a choice, and there are undoubtedly some consequences.

This is something that many of us tend to forget, and even start to regret the things we have done. We may look back and say ‘wow, if only I had invested in that stock when it was $2 – it is now $40! In doing so, we must also realize that we gained something else.

Perhaps you donated that money to charity, and helped someone else move forward in their life. Maybe you used that money to buy some item that provided enjoyment, such as a game or other personal item. You may have even saved that money for future use. Whatever other choices you made, you have gained something, even if it is simply the knowledge regarding making a choice in that area next time. We are all faced with opportunities, and the chance to choose between them.

Does everything have an opportunity cost?

No matter what we do, there is a potential cost and a potential gain. We don’t always take both sides into consideration when we are working on a project, but we should. Sometimes the cost of acting is going to be too much. But more often than not, the cost of NOT acting is what we should be concerned about handling.  In the chart below, we can see that opportunity costs have a sweet spot, as opposed to a never-ending trend on one direction:

Too often we get caught up in planning, thinking, dreaming or wishing about what we think life should be like for us. Inaction, the inability to act positively, is one of the biggest dream killers there is. Too often we can see the place we want to go, but we don’t know how to get there.

What keeps you from acting? Are you afraid of failure? Does there seem to be no way to go forward? Are you too comfortable where you are? All of those things have a cost. The cost is your plans, your future, your dreams. The cost is a continuation of where you are now. You won’t get better. You won’t have a better future and you won’t leave a better life for your family.

If you spend all your time looking at the doors behind you that have closed, you cannot see the ones that are open in front of you. So make sure when you are called upon to make a choice, forgo something with less aggravating consequences.

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