Establishing life's opportunities

  • Published
  • By Maj. Chad Conerly
  • 5th Comptroller Squadron commander
MINOT AIR FORCE BASE, N.D. (AFPN) --  My addiction started in 1997 when I discovered my first Starbucks coffee shop. A friend took me there and he got a "froufrou" coffee with caramel, nutmeg, lavender, rose petals and a hug.

I just wanted a plain cup of joe.

He quickly informed me that ordering a plain coffee in Starbucks was like going into a Harley shop and driving off on a Schwinn. I didn't want to be banished from Starbucks (or from a Harley dealership), so I reluctantly tried the café mocha. I convinced myself that it was just coffee with chocolate and was able to leave Starbucks with my "macho-ness" in tact.

I played off the taste to my friend, but I knew I was hooked. I found myself sneaking to Starbucks at all hours of the day for a café mocha fix. At the height of my addiction, I was spending more than $100 a month on café mochas.

I realized then, I had a thinking problem. I kept thinking about how much I was spending on café mochas. I ran some numbers and realized that over a four-year period, I spent about $4,800 on café mochas. Had I invested the $4,800 at 8 percent interest, I would have more than $82,000 at age 70.

After that point, I started looking more carefully at opportunity cost. Opportunity cost is the cost of a given purchase in terms of forgone opportunities. My café mocha addiction did not just cost me $4,800, it cost me other opportunities. My wife and I could have gone on three cruises (we're bargain cruisers), or I could have had $82,000 more for my golden years.

Am I off café mochas completely? No. Opportunity cost is not about deprivation. It is understanding that financial decisions have consequences beyond the actual dollars spent. To some people, the cost of a café mocha each day is well worth sacrificing a cruise every few years. Comparing planned expenditures to other opportunities ensures you get maximum bang for your hard-earned buck.

Here is an example to mull over. A couple spends $3.50 a day each on cigarettes. If they smoke from age 18 to age 70, they will spend just more than $135,000 on cigarettes. However, if the cigarette money was invested at 8 percent interest, the couple would have more than $2 million at age 70, just from their cigarette savings. In this example, the opportunity cost of smoking equates to a beachfront retirement home in Florida. I'm not picking on smokers. Had I maintained my café mocha habit for the same duration, it would have cost me more than $1 million in potential savings.

Another example: buying used cars versus new cars and keeping them seven years versus four years can save you more than $500,000 in your life time, even after adding in the higher maintenance cost.

I'm not saying to live poor so you can die rich. I'm recommending you analyze decisions with a whole life perspective.

Living far from family, we go "home" as often as possible. The trips home costs us some missed opportunities, but it's worth every penny. We sacrifice some niceties to ensure our kids know their extended family. It's a personal choice. With each major decision we make, we ensure that we're willing to pass up a future opportunity for the one at hand.

Opportunity cost is not just about money. It's about life. If you golf twice a week, the opportunity cost of golfing is about eight hours of lost family time. The opportunity cost of living in a quiet country setting may be longer commutes, equating to less family time and higher fuel bills. The opportunity cost of eating in front of the TV is lost dinnertime conversation. There's nothing wrong with any of these. It's a personal choice. Just realize that every choice (opportunity) has a cost (lost opportunity).

Years ago, I set "life goals". Some were monetary but most were not. Occasionally, I review them to see how I'm doing and to make adjustments as priorities change. This "vector check" has been one of the most beneficial efforts in my life.

Like most people, when shopping for a car I want the pricey sports car. However, looking at opportunity cost and my life goals, I realize that the sports car is not a life-long desire of mine. The pricey car will not satisfy a "life goal" but may hamper my ability to retire before age 55, which is a life goal.

If you do not have long-term goals established for your life, consider doing so. Life is a one-way journey. Striving to obtain goals makes the most of your journey. Analyzing opportunity cost (monetary and personal) is a solid method to stay the course. When you reach the end of your journey, you will be no less dead than the next guy. However, you can "rest" assured that your journey had fewer potholes and wrong turns than the guy lying next to you.

Now, put down that mocha and get back to work.