Definition: What we give away in order to do something. Alternatives. Opportunities we sacrifice.
Insight: We should consider opportunity costs every time we use money and make financial decisions.
Insight: When we spend money now, we should think about what we are giving up.
Insight: Our biggest money mistake is that we don't consider opportunity costs enough.
Insight: Considering opportunity costs is challenging because money is abstract.
Insight: We only compare the value of something with relatively few alternatives (competing products, similar items), which causes us to make irrational decisions.
Definition: The value of what you give up when you make a decision.
Insight: You can't do everything at once.
Insight: Whenever you choose to spend time, money or energy on something, you are choosing not to spend that time, money or energy on something else.
Insight: Opportunity costs are often hidden, and it is hard to pay attention to what is not present.
Insight: Spending too much time, energy or resources in analysing alternatives (opportunity costs), creates a cost.
Principle Don't get bogged down with all options, make a decision based on currently available information.
Definition: Missed opportunities, as a result of decision making.
Insight: More rational decisions are made when we are more informed about exactly what we are giving up.
Insight: Time is money.
Reference: 'The cost of something is what you give up to get it.' - Greg Mankiw, Harvard economics professor
Reference: Famous economics principle: 'There's no such thing as a free lunch'.
Definition: What you have to give up when you choose between options.
Insight: Opportunity costing is the most important thing in business.
Insight: Opportunity cost is not limited to financial cost. Often the most important cost is time, especially for entrepreneurs.
Insight: When starting out in business, making the right decision is very important. The wrong decision can set you back weeks, months, or years.
Insight: The more success you have, the more opportunities.
Definition: Everything you can't use money for once you have spent it.
Insight: Children that understand financial concepts early can become financially savvy and secure adults. One of the most important lessons is opportunity cost.
Definition: The lost gains resulting from the misapplication of your time.
Insight: How to allocate finite time is important as an investor, founder, parent and human.
Insight: The misallocation of time is expensive.
Insight: When asking for a raise, it can be helpful to point out that if you decide to leave, there will be a lost productivity or profit while the position gets filled.
Insight: The human brain can use imagination and mind wandering to predict what might be given up by making a decision (opportunity costs).
Insight: Too much education and credential building can actually prevent real skill acquisition, since the time spent to study something in theory takes away from the time that could be spent building experience or practically applying skills.
Insight: Additional purchases can take time or resources away from what really matters.
Insight: When we take the time to think about what we are giving up by saying 'yes' to someone or something, the easier it is to say 'no'.
Principle: Focus on what you are giving up when you say yes.
Principle: When making investments, factor in all the opportunity costs (alternatives).
Insight: There is an opportunity cost to trying to stay informed or keep up with everything and everyone. It takes our time and energy away from what is really important.
Key Insights & Principles
Decision Making
Saying 'yes' to something means saying 'no' to other possibilities.
'No' is the opportunity to make room for something more valuable.
Knowing what you value is important.
Time and energy is finite. The cost of not allocating them effectively is significant.
Over analysis of alternative opportunities has costs.
A good failure is often a fast one.
When making decisions, consider what you are giving up.
Know your personal values.
Don't get bogged down in discovering alternatives.
Personal Finance
Opportunities can be missed by spending money.
It is costly to not consider what we are giving up when we spend money.
Consider alternatives whenever making financial decisions.
Teach kids about opportunity costs when teaching about money.
Business
For a startup business, time is very valuable.
Success in business puts more importance on being able to choose effectively between alternatives.
Taking no action has a huge opportunity cost.
Don't spend more time or money on what isn't working.
