Lifehacks







Understand opportunity costs

Thursday, 20 October 2005

A critical idea to understand for a successful life is that of opportunity costs. It is one of the key concepts of economics, but is very easy to appreciate for anyone.

The idea is that resources are limited - particularly time and money. You only have so much time and money to spend, in other words. Neither is unlimited.

So if you have $20 and you decide to spend it on a haircut - that's $20 that you can't spend on a book. The book is the opportunity cost of the haircut.

Another example is deciding to spend Friday night at a party instead of studying for an exam. The study time is the opportunity cost of the party.

It is the true cost of buying something or spending your resources. It is what you could have had but have given up in order to have something else.

Why is this important?

Everything you do has an opportunity cost. From going for a walk rather than working, to studying literature instead of medicine, to buying a new car instead of saving for your retirement. How you use the scarce resources provided to you - particularly your time - is a huge determinant of how successul you are in life.

How much of what you want you actually achieve is largely a function of how you use your resources. Because of this, you should get into the habit of weighing up the opportunity cost of amost everything you do.

Is what you are using your limited time for really the best thing you could be? Is what you are spending your money on giving you the maximum benefit it could? Is using your time watching television while your relationship with your spouse withers really worth it?

Like everyone else on this planet, your resources are limited. Make sure you're using them to derive maximum benefit for yourself.




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Many people will read the title of this article and dismiss the advice as too impractical or scary. What could be more difficult than upping-sticks and moving to another country? Yet I'm convinced that in most cases, those who do so for a time find that it contributes substantially to their well-being. Here are some reasons why.
Self help & motivationDon't be a believer in fast and easy solutions to life's big problems
We all face big problems in this life. Things that dominate our psyche for a time and conspire to make us miserable. Nobody escapes at least some of these types of challenges.
Self help & motivationAre you one of the 95% trapped in a financial prison?
Most people in free countries still have one master with absolute control over their existence - money. No matter how much we like to pretend it doesn't matter, our financial situation has a powerful hold over us.
Self help & motivationWhat to do about things that are out of your control
Despite what some would have us believe, there are large numbers of things that affect us in this life that are completely out of our control. What natural abilities we're born with, which family we're born into, what happens with the economy in our country and of course death are all things we're pretty much completely powerless over.
Self help & motivationRelationships are what really matter in life
I've experienced a lot of stuff in my time. I'm been a poor student and a rich professional. I've lived in Europe, Asia, North America and Australia. I've read a ton of books, seen thousands of movies, and tried out just about every amusement known to man.
Self help & motivationIt's okay to be afraid
We all get scared sometimes. It's just part of us to feel a little fear from time to time. Even silly things that we feel adults shouldn't be afraid of sometimes just get us all anxious. This is perfectly normal.
Self help & motivationImprovement usually requires suffering
We all want to be better people. We want to be smarter, wiser, stronger and more beautiful. Look at any magazine rack in any supermarket, and you'll see that self-improvement is on a lot of people's minds.
Self help & motivationHow to improve your imagination and creativity
There are all sorts of strategies that are talked about for improving your imagination. Free-form flowing, lateral thinking and "thinking outside the box" whatever the heck that means.
Self help & motivationDevelop additional sources of income
I was once doing a contract for one of the largest investment banks in the world, when something horrible happened. I'd been there a few months and had got to know a few of the other people. In general, they were nice, dedicated, hardworking people. Many of them had mortgages, families and other commitments.
Self help & motivationLife is serious, but it's also ridiculous
We're all stuck in the middle of this life, and are forced to take it very seriously. If we don't, reality will soon show us the folly of doing so. But take a minute sometimes to take a step back from the day-to-day battles and look at just how ridiculous it all is. If we weren't stuck right smack-bang in the middle of it all, human existence would seem so absurd as to be outrageous.

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