I was walking down 5th Avenue this morning, and then BOOM! Something made me stop in my tracks: the most gorgeous handbag I had ever seen was daintily dangling off the wrist of a mannequin in the window of Saks. I have to have it! So, I walked into the store and asked how much it costs. My jaw dropped to the floor when I realized how many zeroes were on the price tag. Here is my dilemma: I know it is really expensive, but I really need to buy it. What should I do?
Stop, take a deep breath, and walk away from the bag. The problem you are faced with is not as rare as you think. Of course, you could buy the bag, but what would you be giving up to pay for it?
Luckily, there is an economic principle that can help you make the best decision; it is called “Opportunity Cost,” but have no fear for it is not as complicated as it sounds. You are faced with two options: buy the bag or, let’s just say, pay one month’s rent. The essence of “Opportunity Cost” is that choosing is refusing: when you make one decision, you sacrifice all of the benefits of the option that you did not take. So, let us put all of this into a pretty, little chart:
|Your Options:||Buy Purse (or whatever else you want that has too many zeroes to count on the price tag)||Pay One Month’s Rent|
|Decision||You decide to buy the bag. Score!|
|Opportunity Cost (what you sacrifice)||You can’t pay your rent.|
|Benefits Forgone||You picked buying the bag, so you reap all the benefits that are listed above.But, because you decided not to pay your rent, you lost all of the benefits that come with that:|
See, it is not that hard to make a reasonable decision when you follow the steps listed above in the “Opportunity Cost Decision Making Chart.” Remember, this chart is not a “use once and throw away” sort of thing; it is as timeless as your new handbag. So, go ahead and buy the bag if you want, but you will lose all of the benefits that come with having a place to call home each night. The decision is up to you!