Life is full of choices. We make them every second. Conscious choices and unconscious ones. Good or bad, those choices affect and reflect our lives. Every choice we make is multidimensional. That means it affects us in more than one way. The choice we make affects us and those we did not make also affects us positively or negatively. However, considering the choice we are not making is very important in establishing a right decision.
There is always an “alternative forgone” whenever a decision is made. It is called “opportunity cost”. Opportunity cost is important in making financial decisions. Onegood way of making sound financial decisions and creating long term wealth is to always consider the alternative we forgo when we spend money or borrow money. The virtuous woman of Proverbs 31 is said to “…consider a field and buys it”. She weighs her options, various alternatives before she makes a decision. I like that.
Let’s take two scenarios to illustrate. First, when we spend money and Secondly, when we loan money. If you decide to spend just one minute less on phone calls every day and we assume the monetary value of that one minute is 1(currency). You forgo one minute and you gain 1(yen, dollar, naira etc). If you do that daily and invest it for 30years at an average of 10%, you will be worth over 1.5million. Wow! For each “just a minute please” you spend on the phone you forgo 1.5million in thirty years. Imagine if you decide to reduce your call expenses by 1/4 –you might be worth 10million in 10years. So considering the opportunity cost of making a call might make all the difference in your life.
Also if you decide to loan money to buy a car today, you get comfort, mobility, prestige and so on. But what do you forgo: You forgo the compounded interest on the principal, the compounded interest on the interest you pay the bank and also the compounded interest on the interest both principal and interest would have earned. So while you lose all these at the end of the loan period you have nothing but a seriously depreciated vehicle. Two zero in my opinion. Considering the opportunity cost, the alternative you forgo sure makes a difference.
Please don’t lose the message; it is not meant to stop you from making relevant calls or buying new cars. It’s just a reminder that before we make any financial decision, we should ask ourselves “WHAT IS THE OPPORTUNITY COST”.
– emmanuel aladenusi
