72. The Cost of Yes: Understanding Opportunity Cost in All Life Choices

In this episode, host, Laura Sexton, delves into the concept of opportunity cost, simplifying it as the value of what one loses when choosing an alternative. Through personal anecdotes and practical examples, she explores how opportunity cost affects various aspects of life, including college choices, investments, vehicle purchases, and living debt-free. By understanding and acknowledging opportunity costs, listeners are encouraged to make more informed and intentional decisions aligned with their goals and values.

In this episode we’ll discuss:

.     College Choices and Opportunity Cost

.     Investments and Mitigating Opportunity Cost

.     Vehicle Purchases and Opportunity Cost

.     Living Debt-Free and Opportunity Cost

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Transcript

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Laura 0:03

Hello and welcome to the Accelerate Your Legacy podcast. I'm Laura Sexton, your trusted financial coach and money mindset specialist. Join me as we explore the world of money and money mindset while also paving the way for a lasting legacy that extends far beyond money. Together we'll eliminate stress, amplify freedom, and ensure you stop paying for your past so you can start saving for your future. If you're seeking peace in your finances, more margin in your budget, and a legacy that inspires generations to come, you're in the right place. Hey Accelerators! Today we're going to talk about opportunity cost. Now, this can be a very fancy economic term: opportunity cost is the value of what you lose when you choose an alternative. But if we're going to simplify it down just a little bit, It's the cost of an opportunity. You see, anytime you say yes to something, you are by definition saying no to something else. If I say yes to going out with my friends, I'm saying no to saving money. I'm saying no to being home. I'm saying no to going somewhere else. Anytime you say no to something, you are saying yes to something else. So if my friend said, hey, we're going to go out and have tacos tonight. And I said, Um, I don't think that's what I'm going to be doing with myself tonight, so no, thank you, I'll meet you next time. I'm saying no to my friends right now, but I'm saying yes to staying home and relaxing, or maybe I'm saying yes to some much needed sleep. Maybe I'm saying yes to my budget that I promised myself I was going to keep, so I'm saying yes to my integrity. Anytime you say yes to something, there's a cost to that. And anytime you say no to something, there is a cost to that. So opportunity cost is pretty much your definition of saying yes or no to something. And it's the cost of that opportunity. Recently, this has come up for me in with some of my clients and with some of my family and my friends regarding college choice. This is a big thing this time of year, kids are deciding where they're going to go to school, what they want their future to be. College choice can be a very big deal, but what you're choosing is not just a university. Now, when 1 because it was pretty. And it was far away from home. That was my choice. I chose to go to a school that was out of state tuition and it was private. So what I was choosing was to rack up around 50, 000 worth of debt every year for 4 years. That was a choice. And it was not a very smart one, mind you. But I chose it based on the location. So I said yes to a location and I said no to my future, essentially, because I walked out of school after grants and scholarships. I walked out of school with around 150, 000 dollars worth of loans. It's not really what I would recommend people sign up for. It's not, it doesn't feel good to walk out of school with that much in loans, but that was where we were at. So I said yes to a location, and I said yes to an ideal, and what I said no to was comfortability. I said no to future spending. I said no to a lot of things. And sometimes when it comes to college choice, we get our emotions really wrapped up and there's an ideal around it. And we see other people and them running off to school and it just feels like it's something that we are supposed to do. I've been talking with my brother recently about my niece and how she wants to run off to school and she wants to do what Aunt Laura did. So I have to. Bite my tongue on a lot of things, because there was there was a lot that I learned by running off and being completely self sufficient. So a lot of that was good. It was positive. There was a smarter way for me to do it, but a lot of it was really, really positive. So we're having these conversations about how can we say yes to the dream, but no to the loans? How can we say yes to the dream and possibly No, to that big name school. Is there another way that we can go about this? And one of the things that we talked about was everybody sees on your graduation certificate where you graduated from. But nobody asked, well, where did you start going to school? Nobody asked that question. So we've been talking about what the opportunity cost looks like to get your 1st, 2 years at a community college. Most states have free tuition for community college. If you were in state. She's looking to go out of state, but if she were to go to a community college at a much lower price point, she could go to community college. Let's say 10 grand a year. That would mean she'd have to make a little less than a thousand dollars a month, 10 grand a year for 2 years. And at the end of that, she would become a state resident and then move over to a 4 year university at an in state tuition rate. The cost of that opportunity is not being on the beautiful campus for four years, but only two. The other cost of that is she is going to have to work during school. You see, there's always something. You always have to give up something. But the truth of the matter is, studies show that students that go to college work during college, work a 40 hour work week, tend to get better grades. That's what the studies show. So, is it child abuse to ask your child to work while she's in school? No. In fact, that could be construed as very good parenting. Opportunity cost. What is the cost of the opportunity? What are you giving up to get something? Another realm where we talk about opportunity cost is investments. Investments can be very difficult. If you are emotionally involved, I know a lot of people will watch Forrest Gump and you see Forrest Gump open up his Apple. Investment and you're like, oh, I wish I, if I had only invested in Apple back when Forrest Gump originally came out, how much better off I would be. Right? There's that, that looking back in that pining for what the future could look like. Well, you're never going to be able to time the market exactly. Right? Unless you have some insider knowledge, and that's illegal. So. You're not going to be able to time the market exactly, right? So how do we cut down on the negative feelings when we're investing? How can we mitigate the opportunity cost? Well, you can invest in multiple things at once. That would be like a mutual fund where you invest in a range of companies that are all in one fund. So if one goes up and another one goes down, they kind of balance each other out. The other way that we can stave off the fear of missing out or any of the other fears of the stock market is by having a steady investment strategy. By doing this, one, you're taking away the opportunity cost of, well, instead of putting the money in investments this month, I could go use it to buy a boat. Or instead of doing it this month, we can go on vacation. No, every month, your money automatically comes out to Of the bank into your investments, if you have an employer retirement plan, use your retirement plan to have the money come automatically out of your type before it even hits your bank account. It's a forced savings plan. Now, you're the one forcing it, and by doing this and doing a steady investment, you are buying some when they're up, you're buying some when they're down. We're not trying to time the market. What we are doing is we are staving off the feeling of opportunity cost by just making it a steady plan. Slow and steady wins the race every time. We've talked about the tortoise and the hare. Every time I read the book, the rabbit loses. If you are trying to get rich quick, you're going to hit bumps along the way. If you get rich slow, you get to keep it longer. So when it comes to investing, yes, your money could be doing other things. Yes. You could be buying real estate. You could be buying mutual funds. You're going to be buying single stocks. There's so many different investment vehicles. And that's why I always recommend having a strategy or a strategist in place. You could work with somebody like me to have a broad general strategy. I do not do investments. I am not licensed. I cannot give you specifics, but I can give you a general strategy that works best for you and your risk management profile. If you are okay with being a little risky, we can have a more risky profile. If you were like, I am terrified of everything. Then we're going to, we're going to pull you back. But we're also going to make sure that you're making strides forward. So, for me, I have an investment professional that I work with who is able to look at. Long track records, he can look at things and decide what is best. And then together, he can teach me and I can make a decision. Your investment professional should not be making the decisions for you. This is all up to you. So what we are going to do here is we are going to mitigate. The opportunity cost by making it a slow, steady stream, constantly investing, investing when the market goes up, investing when the market goes down. We are going to do it because the track record of the American stock market is up and to the right. So what is the opportunity cost when it comes to a vehicle purchase? This one can be hard. This one can be emotional because a vehicle is the second largest purchase that we tend to make. House being the 1st car being the 2nd, and it's a depreciating asset. So anything that you purchase goes down in value. So anytime you purchase a vehicle, you can look around and you just walk on the lot. And if you buy 1, you're saying no to every other car on that lot. The opportunity cost here is real. When you purchase a vehicle. Whatever you say yes to needs to be an absolutely. I need you to say absolutely to that. It can't be a wishy washy like maybe this is right. Maybe it's not. No, go in wholeheartedly. Absolutely. This is what I want. And I promise you if you pay cash for a vehicle, and it doesn't have to be cold, hard cash, like, you're handing over 100 dollar bills, but if you were using your money in your bank, actual cash money, not other people's money, not buying it on credit. If you go in with your money in your hands. You are going to make a completely different decision than if you're buying it on credit. If you're buying it on credit, you'll buy more car, you'll get more bells and whistles, you'll get things that you don't necessarily need, but you kind of want, you'll add on the warranty, you'll do all the things. Because there's less friction, and it hurts less to use other people's money. If you are using your, Money to purchase a vehicle, you make a better decision. If you were using your money, you have a lower negative feeling when it comes to the opportunity cost because that Range Rover over there might look wonderful, but that's not in your budget. So, you are not going to feel like, oh, man, I really missed out. I probably could have bought that 1, 2, because you have your budget, you know, what you're going in, you're walking in with cash. What that cost over there does not affect you. And it has the impression of lowering this negative opportunity cost. There's vehicles everywhere. And you have to just pick 1 and you have to go with it, but I want you to go. Yes, this is absolutely the 1 for me before you make the purchase. And also, while we're talking about vehicles, go ahead and buy 1 that is at least 2 years old, because the majority of the depreciation happens in the 1st, 2 to 3 years, 60 percent of the cars depreciation happens within the 1st, 5 years. 30 percent in the 1st, 2 years. Let's let the majority of the depreciation happen before you make the purchase. That way, you're not losing a bunch of money right from the jump. Let's talk about the opportunity cost of being debt free. This can get people a little riled up. So we're going to talk about this real quick. You see when you're debt free. You have to make decisions totally differently than if you can just swipe a credit card. Sometimes for me, the opportunity cost is I just can't buy that thing right now because it's not in our budget. This year. We had a gala at our school and I had not planned to do that. To put it in our budget, it had slipped my mind when I had been making budgets, because I tend to make the budget 6 months in advance because I am a nerd like that. And I just really enjoy kind of getting in crunching the numbers and I hadn't put the gala in the budget. That was my fault. And I had the ability to move some things around, but if I were going to move some things around, I was going to have to say no to our summer vacation budget to say yes, to going to the gala. I really wanted to go and I would have had a lot of fun and I could have made it work. But really. What's going on this summer and my kids going to camps and us going on vacation, we're going to go to Nashville in August and saving for a house. For me, that's more important. So why wouldn't I focus in on that as opposed to saying, yes, I want to do this thing that I want right now. You see, when you're debt free, the only option is cash money in the bank. And if I don't have the money in the bank, then I have to say no, and sometimes I have the money in the bank, and then I have to go, okay, so if I take the money out of the savings that I had for the trip, or I take money out of savings that I had for the house, or I take money out of savings that I have for our Christmas budget, I'm having to actually look at it and say, this is what I'm taking away from in order to get the thing that I want right now. When I'm making the budget and I know what our goal is, I have to sit down and go, okay, I'm making the budget. I know that our goal right now is to buy a house. So any money that I take out of the savings category in our budget to add another line item to add something else to add Mother's Day is coming up. If I have to put money in for Mother's Day, then I'm taking money out of the house savings fund. By looking at it that way, it makes it easier to make the decision. Now, this year, I get to spend Mother's Day with my mother, so I am going to be spending a little bit more money, and I'm totally okay with that. But I know what I'm taking away from, and by giving it a name, by giving it a focus, by knowing what we're going after, It makes it easier to make the decision. You see when it's this ambiguous fund over here, which is like, I have money and I have goals there. They're way off in the future. I don't know exactly what they look like. It's easier to take money away from a nondescript goal. But my husband and I are narrowed in, we know exactly what we're looking for. We're looking for a home. With enough bedrooms with enough bathrooms and with a backyard, we know what we are looking for. We have a picture in our mind of what it's going to look like. We know. What we need and we know what we want and we know that anytime we put money somewhere other than into the house savings fund, we're taking away from that dream. We're taking away from how quickly we can get to that dream. Sometimes it can be really hard to say no to yourself in the moment. That's why we want the big angles. That's why we want to be able to see the vision of the future to feel it to know what it will taste and feel like it may sound a little crazy to you. You may be like, I'm saving for my kids to go to college. I don't know what that's going to taste like. I think it's important to go through the why exercise where you ask why 7 times, because in the beginning, the why do you want that goal is going to be surface level. But if you ask more times and more times and more times, you get to the, to the root. Why is it that we want to have a house? I've told you guys this before. I want to have a house because I want the kids to run around and play outside. So there can be more peace in my home so that I can be a better mother. What does it mean to be a better mother? It means to be a mom like my mom. I want to be a mom that's calm in the face of a strong willed child. That's what I want to be. I'm not because I am that strong willed child, and I have a strong willed child, and sometimes we fly off the handle at each other, but every day, I work to be better. Same with my money. Every day, I work to be better. Went to the store today, and the kids wanted Lucky Charms, and I had to think about it. I said, okay, if I buy the Lucky Charms, something else has to come off the list. What can I give up so we can get the things they want? I don't always do that. They don't always get the lucky charms. In fact, they very rarely get the sugar cereal because I do not mean them to be more energetic in the morning, but I have to say no to something so I can say yes to some things. And I have to say yes to something so I can say no to other things. There's an opportunity cost to any decision that you make. It's not just economic. It's relational. It's spiritual. Think about it. The next time you have to make a decision, whether it be a big decision or a little decision, what are you giving up to get this thing that you want most? Now, if you're thinking about this, and I made you think about college investments, vehicle purchases, living debt free, there's a lot to think about there. And you're like, all right, Laura, where do I even start with any of this? You start at the very beginning. You start with a budget. If you've never made a budget before, I have the perfect tool for you. It costs 27, and it is called the Better Budget Boot Camp. And this course, it is an on demand course. You can do it on your time. It is 27, and it will teach you 15 minutes a day for 5 days. It will teach you how to have a budget that is based on what you value most in your family that is tailor made to help you reach your goal. Not my goal for you, but your goal for you. And if you need a little bit of extra handholding, you can scroll down into the show notes and you can click on the money mastery button, and that will take you directly to a calendar where you can book a call with me completely free to you. And we will figure out what your best next step is so that you can move confidently and clearly through your financial journey. I'm so thankful that you spent this time with me today. My friends. Go out and make a difference. Thank you for investing your time with us today on the Accelerate Your Legacy podcast. Remember, your legacy isn't just measured in dollars and cents, but in the tools, habits, mindset, and reputation you leave behind. Don't just listen to the show, but take action on what you've learned. Share this wisdom with a friend who can benefit and help us spread the word by rating and reviewing the podcast. For questions or encouragement, reach out to me on Instagram at Accelerate Your Legacy or explore the resources listed in the show notes. I will be back with you next week. Until then, build your legacy with intention.