Monday, April 14, 2008


When I spend, I've found that it's extremely useful to think about the 'opportunity cost'.

For the purposes of talking about money management, we'll definite opportunity cost here as the cost of what you give up when you make a particular spending choice.

Let's look at a simple example: You spend $2 per day on snacks, or a total of $10 per week. A movie also costs $10. If you hadn't spent that $10 on snacks, at the end of the week, you could have gone to see a movie. So, the opportunity cost of spending on snacks is a movie.

So, next time you see that watch you absolutely must have, or that game you just can't resist, ask yourself: What's the opportunity cost? What if you don't buy that watch or that game? Could you buy something else that's even better with that same amount of money? Or could you have put that money towards something that's more important to your future, like your education? If you do this, you'll find that you'll start making better choices.

No comments: