The economic principle “opportunity cost" can be defined as this: the amount of other products that must be forgone or sacrificed to produce a single unit of product.
And practically. . . ?
In order for us to understand this principle, we have to understand the basic principle that economics builds off of- because we can't have it all, we have to decide what we will have and what we'll forgo.
Have you ever heard the phrase, “there is no free lunch?" Think about it. . . even in a situation when you have a friend paying for you to go out to lunch, is it really still free? Well, for you it is, but that person that pays for it gives up x-amount of dollars, which means they need to work x-amount more! So nothing is truly free; everything has a price to be paid. This type of a sacrifice is called an “opportunity cost. "
Again, and practically speaking this means. . . ?
To gain more of one good thing, you have to forgo the opportunity of getting the next best thing. From a time management perspective, you need to know beforehand what is most important before you make decisions. Because, again, based on the opportunity costs of all our decisions, there is always something that is sacrificed.
Consider this: you have a decision to make. It's Saturday night and your friends want you to go out to the movies. You know, however, that you have to study for you test on Monday; in fact, if you don't study for this particular test a few more hours on this particular Saturday night, you will for sure get a “C" in the class.
You decide to go to the movies.
What was the opportunity cost? Or, in other words, what did you sacrifice in making that decision? The cost was your scholarship for next semester because you chose a “C" on that paper, which dropped your GPA enough to throw away your chances of a scholarship.
So how does this apply to time management? Because all of us are faced with managing our time via the mode of decisions, we are constantly sacrificing one thing or another in choosing what we think is “best" in a given circumstance.
Make sure you understand, using the principle of “opportunity cost, " what is most important to you in life before the sun comes up and decisions need to be made.
Trevor Shipp, the author, works as an online business consultant, student, husband, and business owner. Follow his personal finance blog as he and his family take on life from an economic perspective.