How Trade-Offs and Opportunity Costs Help To Create A Simple & Happy Life

Kloe & Me on the day we brought her home from the shelter.

Like it or not, most of us are familiar with the idea that much of life is a trade-off. Like to live in the city? Then you’ll likely have to put up with noise and people. Hate exercising? Then you may gain weight and lose muscle mass. Want to live in the country? Then you might have to drive miles to find a Starbucks for your morning latte. But even if you are aware of the trade-offs you’ve made in your life on a regular basis, you may not have considered them in terms of the “opportunity costs” involved. What I’ve recently discovered is that when faced with trade-offs, calculating what are called “opportunity costs” is a great way to stay true to your values and focused on the benefits of a simple and happy life.

Okay, so what is an opportunity cost? Originally defined in terms of economics, opportunity costs are the calculated benefits gained or lost in terms of the trade-off of one thing for another. Using the choice to live in the country as an example: the opportunity cost of living in the wild might include: difficulty getting high speed internet for your new online business; lack of cultural and social events to attend; and few opportunities for making new friends. Of course, depending upon what’s important to you, you can easily come up with the opportunity costs that not living in the country offer you as well. While opportunity costs can boil down to dollar amounts, they just as often work out to being the benefits lost or gained, visible or hidden, whenever any choice is made in any direction. And that is precisely why they are so valuable.

Unfortunately, much of the time many of us make decisions and choices without really considering the true cost or trade-off that our choices require.  We sometimes pursue occupations that pay well and look good on the surface, even though if we’d given it any thought we’d know that kind of job would suck the very life out of us. We frequently take on friends, lovers or partners that seem fun or exciting at a party, yet are completely dysfunctional when we get them home. We often buy unnecessary but glittering things on impulse, without thinking about how many hours we must work just to pay for them. As a former teacher of mine named Ernest Holmes once said, “Every Man must pay the price for that which he receives and that price is paid in mental and spiritual coin.” Regrettably, many of us don’t even think of the cost until it whacks us on the side of the head.

Of course, if we sat around analyzing every single trade-off we had to make in terms of its opportunity cost we probably wouldn’t get much done. If you’re an over-thinker like me to begin with, we each must “choose our battles” as they say. But if we never sit down and do an opportunity cost assessment when faced with those big choices, we will likely find ourselves wondering what went wrong and why on earth we ended up in a place we never ever hoped to be.

I’m convinced that one of the ways to create a simple and happy life is to sit down and list the trade-offs necessary to live the life of your dreams. I have no idea what your dream might be, but Thom and I decided around five years ago that we were ready to “right-size” our lives in terms of our priorities.  A big part of that “right-sizing” had to do with how we wanted to spend the money we had coming into our lives. Here were a couple of questions we asked ourselves:

• How do we want to live in the future? (What fit our values and concerns?)
• What were we willing to trade our time and energy for in the future?
• Where did we want to live? (What amenities were important?)
• Was image more/less important than function?
• Would we rather enjoy experiences or accumulate stuff?

Once we got as clear as possible on the above questions we sat down and worked out the opportunity costs of each opposing choice. For example, one of the choices made very clear to us was that we didn’t need the large house we were living in at the time.  While we had always been somewhat conservative about our homes and the corresponding mortgage, it wasn’t until we sat down and really calculated all the costs associated with that house and lifestyle that we had real clarity. Plus, once we knew exactly how much that house and lifestyle was costing us, we were able to imagine a new house and lifestyle that more closely fit our changing values and lifestyle.

That analysis of opportunity costs saved us approximately $30,000 per year. Sure, there was a trade off to live in a smaller, less amenity-loaded house. But when comparing the opportunity costs of each, we made the choice and have been happier with our new home than we ever could have imagined. In addition, over the last three years we’ve managed to save about $90,000!

Other trade-offs have been equally beneficial. Nearly two years ago I started longing for a new dog in our life. It had been over a year since our previous dog had passed away and I was beginning to miss the companionship of a four-legged friend in my house. Of course, we also knew that adding another being to our life would be a trade-off. Comparing opportunity costs we realized that a dog (especially a puppy) meant:

• Time, energy and money to train and fit into our lifestyle.
•  Increased costs for food, toys and vet.
• Added responsibility
• More difficult to travel and a possible hindrance to spontaneity
• Dog hair all over the house (not to mention stains of another sort!)

On the flip side of the trade-off were the opportunity costs of:

• The joy of a sweet and loving fur-baby.
• Increased companionship from a being that is both dependent and loving.
• The daily encouragement to be active and take lots of walks and outdoor adventures.
•  Constant amusement and spontaneous smiles and laughter
• Added social connection with other people who respond to your dog while you respond to theirs.

When taking the time to consciously become clear about the opportunity costs associated with the trade-off, we made the choice to add Kloe to our life and again, have no regrets.

While coming up with the opportunity costs related to your choices can take time, the good news is that it gets easier as you go along. Once you’ve gotten really clear about your values and what is most meaningful and important to you—you can use those as a guideline to instantly help you with your future choices based upon past decisions that were similar. For example, during our recent vacation I was frequently tempted by the window displays in shops all over Europe with desirable clothing, purses and shoes. Even though a part of me was attracted to what I saw, the other part of me remembered the opportunity costs of accumulating more stuff than I really needed or even wanted.

Remember, it doesn’t matter so much what you choose—what’s really important is that you choose in a way that fits your values and will bring you the greatest happiness. Other people might decide that living in a home that has every amenity brings them enormous pleasure for all sorts of reasons that I can’t even list. Or, another individual might find that having a dog is just way more work than he or she wants to take on in their lives. Obviously we must each decide for ourselves.

But, once you accept the fact that most of life is a trade off of choices—it’s easy to see how calculating opportunity costs can lead to a more happy, simple and peaceful life.

Question:  I would love to hear about one or two of the trade-offs you’ve made in your life (and some of the opportunity costs) that have increased the quality of your happiness and life.  Please share in the comments below!