Friday, July 30, 2010

Lesson 7: There Are Only Trade-offs

Study economics. It will help in both financial life and life in general. There is a an economic term, opportunity cost. It is choice B. It is what you leave behind in choosing Choice A. The trade-off. Wiki defines as: a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. It implies a decision to be made with full comprehension of both the upside and downside of a particular choice.

When choosing something, we are always (automatically) giving up on another choice. Some times those choice B's are lost forever, other times we may be able to get back to them.

When I chose to walk-on at GCSU, I gave up walking on for Duke (and Coach K was calling). When I chose to get married, I gave up on the other hotties in GA. Wait, AZ, maybe? And when I became a Naval Officer, I gave up the chance to be an enlisted dude. Are those necessarily bad things to pass on? Not really. But you have to live with your decisions.

The key before making a decision--and thus deciding on the opportunity cost, aka what you're leaving behind-- is to get as much information about the choices at hand. And with that info, weigh the pros/cons and possible outcomes of each choice. Only then, can you rationally make a decision. The results still may not be exactly what you anticipated, but those are the steps in making good decisions. And then, you can live without the trade-off.