To optimize your life, we believe it is necessary to incorporate opportunity cost thinking into your everyday life. First of all, we will look at the basic theoretical idea for calculating it.
Say you want to spend one year in college and want to know how much that will cost you. Now, the normal way of thinking would be to just answer with the monetary cost of the tuition fee. Thinking a bit further than that some might answer that you have to count costs for housing, food and books as well. However, in terms of opportunity cost, it has the cost of missing something else in relation to it. If we assume that our alternative to one year in college is working, and that monetary costs housing and food would be the same for both alternatives, our opportunity cost would be:
Tuition fee: dollar 5000
Books: dollar 100
Foregone wages from working: dollar 10,000
———————————————————-
Opportunity cost: dollar 15,100
After this simple calculation, we can see the true cost of one year in college, the opportunity cost, is dollar 15,100. It doesn’t have to be measured in monetary units and can be applied endlessly in many different ways which I will show you in coming posts. In essence, it will give you a more correct picture of the implication of your actions. With this extra information you can make better decisions and live a more optimized life.
