Opportunity Cost

Many of you read that title and probably asked yourself what in the world is Opportunity Cost! Using this financial principle and understanding the impact can save you money and stop buyers regret. Opportunity Cost also has an element of discipline with it that has to be implemented. I have been leading Financial Peace University for over 14 years and Dave talks abut this in lesson 5; Buyer Beware. I have experienced Opportunity Cost two times recently so for this article I am going to us myself as an illustration.

Here is how Opportunity Cost happens. My wife and I were watching a movie at home in the media room one night and noticed our double recliner / love seat was in need of replacing. The bonded leather is ripping and its just worn out. That same day we had received a flyer from Bed Bath and Beyond with a coupon attached for 20% off our next purchase. Pretty enticing right? Well right in the middle of that flyer was a cool looking love seat that folds out into a bed. It came in cool colors light purple, red, blue, and grey. The more we looky the more we liky! We both looked at each other and said, "let's buy it!" HINT: Guys, when the wife says that, that's your green light to make a purchase. After the movie was over I went to go shop and Becky went to bed.

The flyer said it was only available online. I went to the site and pulled up the red one and proceeded to check out and got the total with shipping and the discount. It was right at the moment that "Opportunity Cost" came into play. The total cost for our new love seat purchase was over $700. We had the cash to cover that, but at that moment, I remembered all the other things we needed that I could use $700 for. The list is long and are items we really needed more that a new love seat. Did I really want to let go of $700 cash for this new love seat?

The next day Becky asked me if I ordered the love seat and I told her no. "Why not ?" she asked! I proceeded to remind her the other things we have been wanting and while the opportunity to buy the love seat at a good price was there, the cost was not what I thought we should spend our money on right now. Thus we have "Opportunity Cost". She agreed!

Dave says paying with cash makes you FEEL the purchase more and makes you really stop and think is this the right purchase. If I had a credit card (which I don't), it would have been real easy to just charge it with no hesitation just adding more debt. I encourage all my readers to move to an all cash system of financial stewardship so that when you make a purchase you FEEL it more and make better financial decisions.

Comments? Have you had opportunity cost recently?