This post originally appeared on January 20, 2014
One of the most well-known ideas in the business world is: “There is no such thing as a free lunch.” What this really means is that when you decide to do something, there is always something that you could have done instead, but chose not to. The “thing you could have done” is a lost opportunity. You gave up something to do or get something else. This idea is known as “opportunity cost.”
Opportunity cost is something that is constantly affecting every person’s life and yet it is something that many ignore. Should you go for a run or stay home and watch TV? Should you go to dental school or find a career using your undergraduate degree? What seems like a minor decision may affect the “bigger picture” in your life.
When it comes to finances, the idea that there is no such thing as a free lunch can be especially significant. Due to the power of compound interest, the choice to go out to eat one weekend instead of staying at home may seem like only $30 or $40 out of your pocket, but it may mean several thousand in lost potential income over 40 years of calculated growth if the same $40 was invested instead. Keep this idea in mind when you make your day-to-day decisions. It is a simple concept and relies on simple decisions in one’s everyday life; yet, it may have a big impact on your wallet if you consistently choose to incur unnecessary expenses now rather than saving for toward your future.
Can you relate to this phrase? Share your experience with opportunity cost in the comments below.
~Megan Mathers, JD, Mathers Law