Understanding Total and Opportunity Costs When Shopping
Suppose it’s the dawn of winter, and you go to your closet to pull out the thick winter coat that you’ve been wearing every winter for the past ten years. However, when you take out the coat, you discover that the stitching that holds one of the arms to the coat’s body has finally given out, resulting in a large tear. “It’s probably time for a new coat anyways,” you say to yourself, and head outside to get in your car and drive to the store.
Twenty minutes later, you pull into the parking lot of your local department store, where you promptly head inside and find a winter coat that suits your liking for $80. Seems a decent enough deal, and after all, you need a new coat. So, you go ahead and buy it.
How much have you spent to acquire this coat? $80 correct?
Well, strictly from the standpoint of the sales transaction you’ve spent $80, but there were other costs as well. Costs you’ve implicitly known, but probably haven’t considered.
You had to get in your car and drive to the store and back correct? Given this, there’s a cost of gasoline required in order to acquire the coat. Further, did you have other plans for the day that were either canceled or postponed due to your taking the time to go shopping for a new coat? If so, the opportunity cost of buying the coat includes whatever activity you sacrificed to use that same amount of time for coat shopping. In other words, the $80 you spent on the coat are only part of the equation. The costs for transportation and the time you sacrificed to go shopping are also costs that were required to get yourself a new coat.
Are there cheaper ways to acquire a new coat? There are monetarily speaking, but these alternative methods come with costs of their own.
For example, suppose instead of driving to the store to buy the coat, you decide to order one online from an e-commerce store. This saves you the money you have to spend on gasoline driving to the store, and it’s likely to take less time to fire up your computer and place an order than it is to drive to the store, search for the coat you want, and make a purchase. The monthly internet bill is likely something you’d choose to pay for whether you needed a new coat or not, and so I won’t factor this into the total cost, but technically speaking, the price you pay for internet is an associated cost as well.
There’s a trade-off though, particularly the time cost. If you drive to the store and buy a coat, you’ll have it in your hand today. If you order one online, it could take several weeks to arrive, or perhaps only a few days if you add in the additional cost of expedited shipping. The question you have to ask is what holds more value to you, the waiting time you save by driving to the store to have your coat today, or the money you save by purchasing it online?
If and when we take the time to plan ahead with regards to what we want and need, we quickly discover that there are numerous costs that can be saved every month, resulting in that much more money to save, invest, or spend on alternative things to improve our lives. However, it’s precisely because most people don’t take the time to do this, that they end up spending more money than they have to day in and day out.
Here at Gadget Wizard's Lair, our mission is to provide you with gadgets and accessories that you need at affordable prices. Of course, part of the opportunity costs we at Gadget Wizard's Lair incur in providing our products at low prices is that shipping times are typically longer. While you may pay only one quarter of the price for our products than you would at a retail store, you may also have to wait several weeks for the product to arrive as opposed to having it in your hand today.
Ultimately, only you can make the decision as to what is more valuable to you, having a product today, or saving money on the product and on transportation by ordering online. However, while an additional $40 or $50 may not seem like much in an individual purchase, in the aggregate, you’ll find that the money you spend to have the things you want quickly begins to add up.
Think about all the purchases you’ve made over the past month and imagine if you could’ve saved just $5 on each purchase. In each individual purchase, that doesn’t seem like much, but when you begin to consider how many purchases you make on a monthly basis, you’ll likely realize you could have several hundred extra dollars to spend, save, or invest.
For this reason, I encourage everyone to take the time to consider the total and opportunity costs every time you make a purchase. Spending just a little extra time doing this can be the difference between saving and squandering money, and here at Gadget Wizard's Lair, we’re committed to helping you do the former.
Be sure to check out the latest products we’ve added to our store, and have a wonderful day!