Opportunity Cost on Discretionary Expenses
Here is a great post from Jeff at pfadvice that to me really gets at the heart of your opportunity cost when you buy something.
I have gotten in the habit of everytime I make a discretionary expense I ask myself if its worth it. I always think this $50 that I am about to spend could buy a couple shares of a company and pay me a dividend of 4% or so (with opportunity for more) for the rest of my life. That dividend is all about freedom - with enough money invested I could someday buy myself out of the rat race.
I have gotten in the habit of everytime I make a discretionary expense I ask myself if its worth it. I always think this $50 that I am about to spend could buy a couple shares of a company and pay me a dividend of 4% or so (with opportunity for more) for the rest of my life. That dividend is all about freedom - with enough money invested I could someday buy myself out of the rat race.
Comments (6)
DATE: 6:07 PM
I ALWAYS think like that... So I definitly know where you are coming from...
Posted by pyroracing85 | September 10, 2006 3:17 PM
DATE: 8:07 PM
It's a good way to think, but when you keep buying worthless IBM stock, you're really throwing your dream away.
Posted by Anonymous | September 10, 2006 3:17 PM
DATE: 9:32 AM
$2m,it's a great thought, but you need balance, too. you don't want to lead an aescetic life until you reach that point - do you?i often find that our pf ideals are not always balanced with our needs for comfort (nix luxury).you're a pretty aggressive saver, so don't go to heavy on yourself.one strategy i've heard is to pay yourself half of what you plan to spend and invest that at the end of the week; i.e. spend $25 and put $25 into savings.My wife and I were pretty impressed when we saw our MM accounts bringing in hundreds in interest - though I fear it's actually not a significant profit in light of recent inflation.regards,makingourwaywww.makingourwayblog.com
Posted by makingourway | September 10, 2006 3:17 PM
DATE: 6:11 PM
I've been thinking the same thing about every $50 I spend. I haven't been buying stock with it, but instead have been lending it out at Prosper.com. I have been making pretty good interest there. My hope is to get enough lended where I can live off of the interest generated.
Posted by Lazy Man and Money | September 10, 2006 3:17 PM
DATE: 2:43 AM
as someone wisely said "Don't spend your money on material stuff. Spend it on Freedom!".
Posted by Empty Spaces Inc. | September 10, 2006 3:17 PM
DATE: 11:50 AM
I think as makingourway mentioned, it's all about balance. It would REALLY be a shame to deprive yourself of all the fun stuff now and then kick the bucket earlier than you planned. For all you know, you could get hit by a bus crossing the street tomorrow.Kinda morbid, but it happens (my dad died unexpectedly at 46 years old, for example). I'd hate to think that I'm doing nothing but preparing for a future that might never come. Again, being dinancially responsible doesn't mean deprivation from things that make you happy, just to save a couple of extra dollars.
Posted by ChippingAway | September 10, 2006 3:17 PM