In my 1st year of college, I took an Intro to Economics class where I encountered one of the most useful and powerful ideas I’ve ever applied to my work and home life. 

My professor asked "if you're watching a movie and you realize that you could leave the theater and do something that offers more value than continuing the movie, what do you do?" 

I said I would continue watching because I'd want to get my money's worth. 

Then he explained that because the ticket was a sunk cost (you can't get that money back), the economic principle of opportunity cost would encourage leaving the movie theater and pursuing something more valuable. 

(I’ve walked out of plenty of movies since...)

Opportunity cost is the opportunity you're giving up by continuing 
to follow the default path.

Now while you could apply this to everything in your life, let's not turn this into an obsessive passion. In other words, I don’t recommend that you weigh the opportunity cost in your mind every time you meet with your spouse or your kids, or with a friend or colleague. Use this economic idea selectively and especially with your finances.

1. Think about a spending category - one where you might not be getting as much value as you imagined. Perhaps, like me, it's paying for cable access to basketball games.

2. Consider how you could otherwise utilize that money. I could use that monthly cable amount to attend a basketball game in-person once per year, or eat more regularly at great restaurants. My opportunity cost is the cost of missing the fun of an in-person basketball game.

3. Now, consider your investment accounts or your 401k plan. What's the opportunity cost of having your current investment allocation? Given that many of us are sensitive to the barrage of negative forecasts about the markets, we might be biased to elect a more conservative allocation than actually fits our situation. I encourage you to ask your financial advisor to illustrate the opportunity cost of staying where you are versus shifting your allocation. The difference might be millions of dollars over time.

Opportunity cost represents the value of the best alternative you give up when making a choice. 

The key insight is that every financial choice involves trade-offs, and recognizing these trade-offs helps you make decisions with more clarity.

Understanding opportunity cost naturally leads to better habits. When you recognize that every dollar spent is a dollar that can't be saved or invested, you become more selective about your purchases. This doesn't mean becoming overly restrictive—it means being intentional about spending. The same is true with your time. 

Opportunity cost isn't just an economic principle—it's a lens for living more joyfully, in alignment with your values.

What's one opportunity cost you've discovered that changed how you spend?