Are you interested in one small mindset change that reduces Anxiety, increases Control and Saves Money? What if I said this one thing wouldn’t take much time? Would you be interested? I think so! Here it is: Define Your Opportunity Cost.
We commit, we spend, we react, based on the moment. If we don’t have a comparison benchmark – an Opportunity Cost, then the cash flowing out simply makes sense at the time. But what if you were to stop and ask yourself “What if I did XX with the money instead?” Opportunity Cost is the cost of doing something else with the money you are about to spend. Now you have a benchmark for comparison. This helps you to determine the VALUE you get by spending the money or diverting it to XX. Here is an example.
Defining Your Opportunity Cost
Let’s say you’ve been wanting to save more money and just can’t seem to do it. Defining your Opportunity Cost equation takes 2 steps:
1. What do you dream of? What do you really want to do?
- I really want to go to Italy. It’s about $5,000.
2, What do things approximately cost you now?
- $100 equals 2 dinners out at $50 each
- $100 equals 4 pedicures
Using Your Opportunity Cost:
I can get 4 pedicures a month, or I can save some for Italy. It’s winter, so I don’t need as many pedicures. If I only get 2 a month, that saves $50 a month for Italy. $600 a year.
I spend $100 every Friday and Saturday eating out or I can save for Italy. If I decreased from 8 to 6 dinners out a month, that saves another $100 a month for Italy. $1,200 a year.
- If I do this for twelve months, I will have $1,800 for Italy.
Benefits of Smarter Choices
- Deliberate Choices - just another meal out OR $50 in savings.
- Choices are Measurable - so you can easily compare.
- Control - you decide which is most valuable.
- Reduced Anxiety - you gain control and tackle one of those “shoulds” in life – saving more.
- It Saves Money - which is sheer motivation and reward. You’ll feel great.
One small change in your life for 2018 will give you more power over your life. Try it. I’d love to hear how it works for you.
Your Personal Money Coach, Carrie
Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Behavioral Cents, LLC and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.
Carrie Rattle is a Master Money Coach & Founder of Behavioral Cents. She is a 30-year veteran executive of financial services. Behavioral Cents helps women achieve independence, freedom, and a bigger voice in the world. By building a fatter bank account women can confidently walk away from a bad job, build a business to change the world, or live their own dreams. We work in a private, non-judgmental atmosphere with a program tailored to change your money behaviors for the better – without deprivation. Thoughts always welcome: firstname.lastname@example.org