Prioritze Your Spending and Take Control

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In economics, there is a term called opportunity cost. I strongly believe in this concept with everything that I do. Basically it means what are you giving up when you make a choice. This applies to many different ideas but here we will talk about the opportunity cost of purchases.

Every time you make a purchase you are making a choice to hand over your hard-earned dollars in exchange for something else. This is why a function of money is known as a “medium of exchange”. When you decide to give your money away for choice A, then all other choices are no longer available to you. You may have more money to still buy choice B or C but you are now using different money than what was used for Choice A and your total amount is diminishing each time you spend.

Many of us make split-second decisions usually when the cost is small. Standing in line at the store we might grab a magazine at the last-minute and say to ourselves ” hey it’s only $3.00″. The problem is that many of us do this multiple times a day that can really add up.

How do we take control?

1. We as individuals need to think about what we really want and prioritize our wants and needs.
2. Then look at what our available cash is each month to acquire these wants and needs.
3. Start at the top of the list and begin to budget your available cash for each category.

Example:

I have $300 a month to spend.
I want:
  1. Occasional alcohol $30
  2. Go out to eat once a week $200
  3. Take the family to a movie once a month $50
  4. Save at least $100
Now I need to prioritize in order of importance to myself:
  1. Save at least $100
  2. Take the family to a movie once a month $50
  3. Buy occasional alcohol $30
  4. Go out to eat once a week $200
It would cost me $380 to accomplish all of this but I only have $300 therefore I can reduce the amount towards eating out by $80 and change my plan to eating out every other week. Now I have made sacrifices to my plan but still have accomplished what’s more important to me first. If I had not made this plan then I would probably have accomplished goal 2-4 and been left with only $20 to put in savings.

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