Opportunity Cost: How to Make Better Choices in Life

Imagine a stove with four burners on it that each represent a major area of your life:

  • The first burner is your family.
  • The second burner is your friends.
  • The third burner is your health.
  • The fourth burner is your work.

The Four Burners Theory says, “In order to be successful, you have to cut off one of your burners. And in order to be really successful, you have to cut off two.”1

The Inevitable Trade-Offs of Life

If you want a successful career and a happy marriage, then you won’t have as much time for working out and seeing your friends. If you want to be healthy and succeed as a parent, then you won’t have as much time to put into your career.

Of course, you can choose to spend your time equally among all four burners, but then you’ll never achieve your full potential in any of the areas.

It’s quite a predicament, and there’s no perfect solution for it. But the Four Burners Theory is still useful because it highlights an important fact of life that we tend to overlook:

Making decisions requires trading off one goal against another.2

Every Choice Has an Opportunity Cost

We continuously face decisions between the benefits and costs of one option and the benefits and costs of another option. The problem is that the benefits are usually much more readily apparent than the costs.

And that’s why it’s important to understand the concept economists call opportunity cost: “the loss of potential gain from other alternatives when one alternative is chosen.”

You can think of it this way: Every time you say yes to something, you’re also saying no to something else. The thing you say no to would have given you certain benefits. And now that you’re not getting them, they are your opportunity costs.

Imagine, for example, that you’re browsing Amazon looking for a book to read. When you find an interesting title, all the possible benefits are readily available on the book page. But what is less obvious is the opportunity cost of the book. That is, the benefits from the other books you could read instead.

A Yes is Also a No

Considering opportunity costs in your decisions is important because it helps you to assess different courses of action more accurately. Before I knew about it, I jumped on a lot of exciting business opportunities that came my way because I focused solely on the benefits.

But I’ve since learned that each of these endeavors come with a steep opportunity cost. Every time I say yes to some appealing new opportunity, I also say no to researching, writing, and marketing my books. Sure, I might gain some nice short-term benefits, but they’re rarely worth straying outside my circle of competence and losing momentum in my author career.

How about you? In what areas of your life do you need to start considering the opportunity costs? And what changes do you need to make to get the greatest return on your limited time, energy, and money?

Footnotes

  1. The Downside of Work-Life Balance by James Clear
  2. Principles of Economics by N. Gregory Mankiw, page 4.

This article is an excerpt from my book The Decision-Making Blueprint.