The Happiness Equation: Do What Gives You Leverage
By: Nicolas Cole
Tags: Happiness In Life, Wealth, Fulfillment, Happiness, Success

Opportunity cost is the delta between what you’re currently doing and what you could be doing instead.

Truthfully, most people never understand this idea.

I’ll give you a perfect example:

There are two kinds of professions in this world. The kind where you get paid by the hour (hours for dollars), and the kind where you create something once but then get paid on residual.

I grew up in a very wealthy neighborhood — top 1% of the United States, and easily top 0.5% of the world.

Most of these successful families are the result of “hours for dollars” jobs: doctors, lawyers, bankers, etc. They make great money while they’re clocked in, but their income halts as soon as they stop showing up to the office.

Having watched my own father, a surgeon, work tirelessly for my entire life, I have have taken it upon myself to reach out and learn from those who achieved the same or much greater levels of monetary success, but actually work less. After all, what good is a mansion and a driveway full of sports cars if you’re too busy to enjoy it?

What I’ve learned is the primary difference between those who sit in the top 1% of income earners and those that live in the top .01% think about their resources differently.

Very differently.

Someone who earns a great living tends to think more about protecting the income they’ve earned, rather than leveraging it for more later.

If someone were to approach them and say, “Hey, I can do some of the work you’re doing for X,” they don’t see that as an opportunity — they see that as a loss of income.

This person would be replacing part of their income, which means less for them.

For someone in the top .01%, this way of thinking is counterproductive.

These people see TIME as their greatest asset — not money. So if someone comes along and says, “Hey, I can do some of the work you’re doing for X,” if X is less (much less) than what they value their time at ($), they see that as a beneficial opportunity. This other person can take care of the work, which gives them more time to do bigger and better things.

For example: Entrepreneur values his time at $500 / hour.

Kid comes along and says, “I can handle all your scheduling and paperwork for $20 an hour.”

$20 < $500 = Opportunity.

Opportunity cost, then, is when an individual decides to continue doing X even though their time could be better spent doing something else instead.

A lawyer might continue doing his or her own paperwork because they earn $300 / hour for doing so.

The opportunity cost, however, is that if they pass along that responsibility to someone else, that’s X hours per week they could potentially earn far more than $300 / hour because they have more available TIME.

It’s actually not terribly difficult to become “wealthy.” Wealth can be earned with a combination of hard work and disciplined money management habits.

However, becoming extremely wealthy without understanding this idea of opportunity cost is nearly impossible. There are only so many hours in a day, and almost every industry has a ceiling as to what someone is willing to pay for one of those hours (your expertise).

And lastly, opportunity cost also means that when you’re doing X, you’re not doing Y, Z, etc.

This idea doesn’t only apply to income, but also to things like fulfillment, relationships, hobbies, and other interests.

If you’re working, that means you’re not vacationing.

If you’re vacationing, that means you’re not spending time at work.

Etc.

It all comes down to how aware you are of the decisions you’re making, and why you’re making them.

A father might think, “I’m working a ton, and I’m providing for my family.”

Ok, great. But the opportunity cost by working too much is that you never see your kids.

A mother might think, “I’m going to take as many hours as I can get at this job because they pay good money.”

Ok, great. But the opportunity cost is that if you take on too many hours, there will be no time left for your passion for painting — which brings you fulfillment, happiness, and you believe you could turn into a lucrative career down the road.

It’s not that there is a right way and a wrong way of playing this game of life.

What this idea of opportunity cost reveals is that most people aren’t aware of why they make the decisions they do. They see all the reasons why they should do something, but not the reasons why they shouldn’t.

Awareness, then, is the ability to see both sides of a situation and make a conscious decision that will end up leading you to the next opportunity, and the next opportunity.

Those that build the lifestyle they truly desire for themselves have a firm understanding of opportunity cost.