The Opportunity Cost of Your Time

by Kevin on September 19, 2013

What do you know about the term opportunity cost?

Thinking back to my collegiate days I took two economics classes where opportunity cost was discussed many times. Opportunity cost to me is the thing or things you give up when you make a choice.

Here’s how Wikipedia defines opportunity cost:

“…the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources.”

When I think of opportunity cost I’ve always had the concept of spending money on thing rather than another.

Thanks to becoming a parent, I know now the wonderful possibilities that exist with opportunity cost. It isn’t just money.

It’s time.

Opportunity Cost and Your Time

While it totally makes sense that if I buy Starbucks coffee for $5 that means I’m giving up the opportunity to buy something else at $5 or the ability to set that $5 into my retirement account. (Which, by the way, would grow to $108.62 assuming 8% annual returns over 30 years… but I digress.)

But the same concept absolutely holds true to the value of your time.

You would think I would have figured this out already, but it just struck me recently.

Life is… busy. I don’t try to toot my own horn at all, but here’s what I’ve got going on in life:

  • I’m married to an awesome, awesome woman.
  • I have a son. What in the world. It is weird to type that!
  • Oh, and I have a dog that I am smitten for, too.
  • I work a full time job, that I like.
  • I perform some special responsibilities in that job that involve traveling ~4 times per year for a week.
  • I have a robust freelancing career that keeps me busy most nights during typical free time hours (which is unfortunate, but I love doing it).
  • A separate side business I am doing some testing on to see if it is worthwhile to get started.

I am a number crunching guy who loves his budget spreadsheet. I’ve recently gotten into the travel reward miles and points game with great success. (It helps to be a number crunching budget spreadsheet kind of guy to play that game.) I love college football. I love, but have no time for, fantasy football (and will promptly be destroyed in my personal finance blogger league this year.)

But all of these things require time. And thanks to having a son the amount of available time I have is dwindling. Quickly. Life was already busy before he arrived on the scene but now it is just over the top busy.

That means if I choose to hold him and spend time with him when I get home from work I suddenly have a lot less time for freelancing, reading travel blogs, and walking my dog. Not to mention eating dinner at the same time as my wife.

It’s a great problem to have: I have a great family, a great job, a growing side job, and a lot of hobbies and interests I can pursue. It’s just a lot to juggle, thus making an hour of my time more and more valuable every day.

I personally wish that opportunity cost would be used at every level of education. It is one of the core concepts of life. Doing Option A means you can’t do Options B, C, and D. This concept helped solidify my understanding of personal finance and the value of investing for the future. (Thus my $5 into $108.62 comment above.)

How do you value your time? Do you come up with a dollar figure or just go by your gut? How often do you think about opportunity cost?

{ 1 comment }

Michelle September 19, 2013 at 7:14 am

I tend to think about opportunity cost. However, sometimes it is hard to realistically put a value on opportunity cost for me because if I spent money on something, it is hard for me to say no to it because of other opportunities which may arise. So, even if I am extremely unhappy, I might still do whatever it is just because I already paid for it.

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