According to Investopedia, the definition of opportunity cost is a benefit missed when an investor, individual or business chooses one alternative over another… keep that in mind over the course of this blog post.
How many times have you been scrolling through social media and stopped short on one of your friend’s posts? An awesome vacation photo, a fancy dinner post or even the new house your friend bought. These types of posts can make you feel envy, anxiety or even inadequacy. One might take a social cue from such posts thinking “is this how my peers actually live?”
The truth of the matter is everyone is living their best day out on social media. A carefully crafted highlight reel. You rarely see the struggles of daily life on Facebook or a bad hair day picture on Instagram. People reveal a glimpse of their personal lives and put their best foot forward.
Here is a cautionary tale, a tale of keeping up with the Joneses via social media.
We had just had our yearly review at work. Bonuses were given and salaries were raised. We had a good year that year. Excitement was a buzz around the office. It was the end of the first quarter in April and Mother’s Day was just around the corner.
My cubicle neighbor was jazzed. He wanted to get his wife a special Mother’s Day gift. Some type of present that would show the magnitude of his love. He admitted his neighbor had just bought his wife an expensive European car. It was the talk of the neighborhood wives on social media accounts. He too wanted to buy his wife a car. He wanted his wife to feel special in the way his neighbor’s wife felt. After all, she had a car that was only a few years old but he figured she needed a new one with all the bells and whistles. He had done some preliminary calculations and decided he was going to pull the trigger. He could, as he stated, “afford” the payments with the bonus and the new raise.
He chose a brand new model year Dodge Charger, cherry red. It was a beautiful vehicle. He posted a picture montage of his wife’s surprised face, the car sitting with a bow in the driveway and them driving out to a nice dinner in her new ride. She announced publicly on Facebook that he “was the best husband in the world”.
He came in on Monday morning with his chest all puffed out and proclaimed, “Did you see what I bought?” He was basking in the glory, talking about all the specs of the new car and how he had stomped the gas petal to the floor and got it up to 132 M.P.H on the ride home from dinner. He was all smiles.
As the weeks rolled on his excitement wore off about his wife’s car. Coworkers didn’t ask about the plush leather seats and the Hemi engine as much. It was now just his wife’s car, a fact that was to be accepted and not wooed over.
Then one day, as he came into the office, he seemed a bit down. When I asked him what was wrong he began to wring his hands. He stated rather tensely, that the payments on the car had begun to come in then the insurance was due and gas was more expensive for this car than her previous commuter. It turns out that most of his salary increase had gone to this gift. He didn’t have any more or less money than before his bonus and raise. He wasn’t stretched thin or underwater on the car. It dawned on him, what could that money have been used for besides purchasing a vehicle. He recognized the opportunity cost of his purchase and I could literally see it in his body language.
Once the utility of happiness wears off from buying a new item and the secondary utility of posting the experience, you are left with the opportunity cost. Sometimes, it can be a deflating feeling. Could you have paid off some debt or added to your emergency fund? Could you have saved up for a family vacation or added to your investment portfolio? Is it worth the item or experience I chose to have over these other options?
These questions are for the reader to decide. Beauty is in the eye of the beholder. However, impulse shopping, extravagant vacations and super fine dinning are not going to get you any closer to an early retirement and quitting your job for good. I understand that experiences and little monetary treats are an important part of a healthy relationship with money, but what are those experiences costing you?
Imagine if you started adding up the hours it took according to your salary to purchase those items or experiences. Instead of saying those new Nike Air Jordan’s cost $160, say those sneaks just cost me 5 hours of work… and that is pretax money! That new SUV just cost me 15 months of work… with overtime. That trip to the beach house rental pretty much cost me half the money I make until I accrue enough vacation time to do it all over again. If you are making the choice to be financially free, then you may have to make some sacrifices along the way. Opportunity cost is attached to every dollar we spend or don’t spend.
Take heed from my unfortunate coworker and stop to think -What are you giving up “doing it for the ‘gram”? Something to think about the next time you see your friends posting about their social media lives.