You've Got to Think Like a Business, Trust Me...it Works

Tweet

In the world of business, we often use the phrase, opportunity cost. It essentially refers to the financial consequence of not pursuing an action that could have generated more revenue for the business. For example: • Not investing in equipment that could boost production capacity. • Not taking advantage of a reduced wholesale cost for a raw material. • Not hiring an additional person who could potentially increase production and foster more profits if we have unused capacity. I bring this up because, as I've long held, business excels at one thing, and that is growing and generating profits. In our household, it's been a long-standing rule to run our finances similarly to an accounting function in business. Granted, it helps to have a business background. We actively seek cost savings and adapt a dollar cost averaging approach to everything we buy. For instance, if pork steaks are on sale, we might double our purchase to lower the average price per pound we pay over a year. Not doubling our purchase carries an opportunity cost. We also look for ways to increase our earnings potential on ever dollar we save and invest, and we consider unsaved money as having an opportunity cost. Rather than being complacently employed, we always stay on the hunt for better pay and opportunities, not wanting to miss out on something that could improve our situation. Not being constantly on the hunt has an opportunity cost. The point is that opportunities abound, and there's plenty of money to go around in this world. But it doesn't come to you automatically any more than it comes to a business automatically. It's a constant process that requires vigilant attention. The success of a business relies on keeping costs sensibly low while continually seeking ways to increase production and maximize the value of every dollar coming in and every one going out. There's no reason an individual can't achieve the exact same thing on a smaller scale. Wealth building is about understanding the true value of money, the advantages of owning assets over things that depreciate, and being ever vigilant about your finances. Most importantly, it's about grasping the concept of opportunity cost and identifying the areas in your financial life where you are incurring costs by leaving certain opportunities behind.