Every Yes Is a No: The Truth of Opportunity Cost

December 27, 2023

We say “yes” to countless things every single day—whether it be a purchase, accepting a task or invite, or even giving something our attention. Most of the time, these are not conscious decisions, but automatic responses reflecting our priorities and values embedded deep within us. When we say yes to something, we are also saying no to endless other possibilities, because our attention, time, and resources are finite.

 

In a positive light, opportunity cost describes what we willingly choose to forego in pursuit of other opportunities; we choose the most beneficial option in that given moment. But a starker way of thinking about it is to consider the potential alternatives we’ve lost by making a particular choice. No matter how you look at it, opportunity cost is a powerful concept and can be paralyzing or empowering, depending on your perspective.

 

We stand on the precipice of New Year’s Resolutions and our imagined new beginnings. Most often, these are framed in new patterns we want established. But hidden in the unspoken shadow of these decisions are the things we’re giving up. Getting outside and exercising more may also require less time watching television or using social media. Saving more towards your future, will require less spending on short-term expenses. When your time and money are finite, which they are, every decision you make involves the concept of opportunity cost.

 

This reality is paralyzing if we fixate on the endless possibilities for our money and time. However, it can actually be empowering if you use the general idea and implement some basic strategies around it:

 

  1. Prioritize Your Goals: Creating concrete long and short-term goals—and then prioritizing them—can help define what you want to get out of life, allowing you to actively orient your life towards them. One of the most rewarding things about being a financial advisor is helping people figure out their goals and then making them a reality.

 

  1. Determine Trade-offs: Once your goals are in place and prioritized; it’s much easier to figure out what is most important. You can then properly assess the advantages and drawbacks associated with each major decision, knowing the long-term implications of your choices.

 

  1. Budgeting and Boundaries: This applies not only to your finances, but also to your time and energy. When you know what your priorities are, it’s much easier to say no to the things that do not fit within those parameters. You can acknowledge that they may be good things for others, but don’t align with what you’re trying to achieve or where you are going.

 

  1. Evaluate: Revisit your long-term goals on an annual basis. See if there have been any major shifts to your priorities or needs which require a reworking of your current plan. These can change drastically from one stage to another or at points of unexpected transition in life.

This process can be as informal as you would like, but it’s an important idea to keep in mind and have some level of structure around it. It’s easy to spend our time and resources on things we simply don’t care about, when we don’t take the time to reflect upon it. I’ve found that the simplest way to stay laser-focused on the things that I value is to pay/schedule my most important priorities first. Have your latte, take a vacation, do nothing productive this weekend—all of those things can be enriching and restorative. However, make sure that the first part of your pay goes toward your long-term priorities and the most significant tasks get taken care of first. I promise that when you achieve these well-deserved fruits of your labor as a result of your proper planning, as opposed to using them as momentary escapes, they will be enjoyed all the more.

 

The end goal of recognizing opportunity cost in our personal lives is not just about creating structure, but using this knowledge to create an enriching and ultimately more fulfilling life. Go into the new year with confidence that your decisions are leading you into that life. Happy New Year!

 

 Please see important disclosure information here.

 

Zach Harney, CFP®, CIMA®, AIF® is a Wealth Advisor at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Zach Harney, 2340 Garden Road Suite 202, Monterey, CA 93940 or email zach@montereypw.com.