This is going to be a short one, but don’t let that throw you. This is actually a really important lesson about personal finance. Pay attention and really think about the lessons taught in this post. They’ll save you thousands, if not 10s of thousands of dollars in your lifetime.
Opportunity cost – in this sense, refers to the trade off you make by owning something. For example, say you buy a $5 DVD. Well, you don’t just pay $5 for it.
- You also pay for the DVD rack you eventually have to store it in.
- Then you can’t use the space the DVD rack takes up in your place.
- Then you have to buy more DVD’s because you feel you have to fill that DVD rack you paid so much for.
- Suddenly that $5 DVD turns into hundreds of dollars, a ton of space you could have used for something else, another thing to clean around, and then some.
That’s a big cost for a $5 item, when you could’ve just rented it. Was it really THAT important to own?
Opportunity Cost Is Long Term
The same goes for any type of material possession. It doesn’t just cost you what it says on the receipt. It also costs you a lot to own that thing in the form of storage, clutter, maintenance, breakage, cleaning, etc. All of these costs are associated with owning something. Before you know it, you’ve accumulated enough stuff to need a bigger house.
Then what happens? You buy that bigger house and you become obsessed with filling all of your new space. You have to have more things, more stuff, more possessions, more decorations, more pretty shiny things, just to look at!
Then you do things like:
- Spending money to make yourself feel better.
- Buying things just because they’re on sale
- Sliding your credit card because you think “I might use that someday.”
You end up filling entire rooms in your house with things you’ll never use, some of which is never even opened!
All of that stuff comes with a much larger cost than you realize – the opportunity cost.
And from the cycle continues. Eventually, without realizing where all of your hard-earned money has gone, you’ve spent 10s of thousands of dollars on mostly stuff you end up not using, and possibly hundreds of thousands of dollars on space to store it all.
That’s one way people end up piling up a mountain of debt that they’ll spend 10 years paying off. That’s how people in the middle class end up living from paycheck to paycheck, and stressing out about how much money they can spend at the grocery.
They spend everything they earn on stuff instead of focusing on things like saving money and taking more vacations.
Don’t let that be you.
- Think simplicity
- Think minimalist
- Live comfortably, not extravagantly, not above your means
- Enjoy a clutter free life
- Enjoy a life where you don’t have to worry about if you can pay your bills without racking up debt
- Enjoy stress free living
Eliminate stuff, and you’ll eliminate a lot more cost from your life than you think.
To Your Success!