Most of the time when someone speaks of opportunity cost, they are talking about money. Opportunity cost is the value given up to pursue one choice over another. I read an article about a couple that took a year off from work to take an around the world trip. Somebody left a comment on that article that said, “I’ll never understand this kind of thing, the opportunity cost is staggering if you have any sort of decent paying job, if you each made 50k (per year in income), that’s a 200k loss.”
This person doesn’t understand it because they look at life in terms of money. Perhaps even that money is the limiting factor in life. Money can be a limiting factor, but I see Time as the ultimate limiting factor. Money can be earned. In a general sense, you can work more to earn more money. No matter how much more you work, you can’t earn more time. We get a certain amount of time in this life, and we have to choose how we spend it.
Even though I didn’t fully realize it at the time, when we chose to downsize, the reason was ultimately to free up more time. I was spending a lot of time maintaining a house, a yard, a pool, and commuting to and from work. Much of my time was dedicated to things I didn’t particularly enjoy. I enjoyed using these things, but not so much so that I wanted to spend a large chunk of my time taking care of them.
I was recently called out by a commenter on my post about renting an apartment. The post talked about taking the money we saved each month and using it for fun activities.
This is a VERY risky attitude. If you SPEND the money that would be going to house payments and maintenance (above the amount of your rent) on something else rather than investing it, at the end of 15 or 30 years you will have nothing.
This is why people say the house is a “forced savings” plan. At the end you will have an asset. If you rent and fail to invest the excess cash flow because you want to “spend it on something else”, when you retire you may very well wish you had kept the house when you see how tough it is to pay rent using SS checks.
There is some truth to this comment. A house is a forced savings plan in some sense, and if we don’t save, we won’t have anything to show for it later.
I don’t want to discount the value of that advice, because there is value to it. However, the commenter was seeing this as opportunity cost in terms of money, while my view is the opportunity cost in terms of time. We are in the prime years for my daughter. Her memories of childhood could be tied to a house we can barely afford, and our time spent maintaining it, or we can take these years and do something better. For us, better means doing fun things, going on adventures, taking trips, and making the most of every single second we have available.
When she was four years old, I saw that time slipping away. I saw the time that she will never have again. Each year of her life is ticking by more quickly than I can imagine. It seems like just yesterday she was crawling around in diapers, and now she’s eight years old and creating adventures of her own with friends and family. Sleeping over with friends, going places with cousins. It won’t be long before she’s off on her own seeking adventures without returning for snuggles at the end of each day.
I may well be giving up future security for present day fun. It’s a risk I take so that my time with my daughter is the most it can be. When I’m on my deathbed, I want look back and smile, knowing that I had many great adventures with my wife and daughter.
Even if I have to be homeless when I’m and old man, I would much rather spend the 18 or so short years of my daughter’s childhood in a way that gives us the best and most memorable experiences.
When I look back on my childhood, I don’t remember much. What I do remember are the adventures we had. The vacations, the trips, the camping outings. I don’t remember anything that was dependent on us owning a house. All my fondest memories from childhood were independent of our living situation.
Those memories were key in our decision to downsize, to sell our house and move to a rented apartment. We had a number of adventures when I was a kid, and I wanted my daughter to have great adventures and memories as well. I found that very difficult while trying to keep up with home ownership. I was spending too much time, effort, and money maintaining a house, and I had little left over to fund and plan adventures.
Sure, we could do some cheap things, like go to the park and go camping on occasion, but I wanted more. I didn’t want money to be the limiting factor. We save quite a bit each month by not having to pay higher utility costs as well as some of the other costs that go with home ownership.
I choose to put a large chunk of that time and money towards adventures with my family. We have been to concerts, movies, circuses, and shows. We go roller skating and go to the beach. We have taken several cruises to destinations in the Caribbean. We went camping, snorkeling, and fishing in the Florida Keys. We hunted for fossilized shark teeth in Venice Beach, FL. Sometimes we take last minute weekend trips that turn out to be epic fun. And, while we are doing all these things, I can focus my time and energy on the adventure rather than how much it costs.
I used to be among those that wondered why someone would spend thousands of dollars on a vacation when they could buy a new computer, phone, or some other cool doohickey. It took a major perspective shift to change that thinking. Spending on experiences instead of on stuff, is not something that everyone (including my past self) will understand. But now that I have shifted my perspective, I can’t fathom going back to my old way of thinking.
I think everyone should have some sort of plan for retirement, but I don’t think fear of the future unknown should guide your present day decisions. I have a 401k retirement plan at work, and I didn’t cancel that plan when I sold the house and started renting. But, I didn’t increase it either. I left it as is, and I hope (and roughly calculated) that it will be enough to fund our life in the future. I know that our minimal lifestyle will be easier to fund, even if we do have to pay for rent.
Today I ask myself, what is the opportunity cost had I not changed my perspective and transitioned to a more minimalist lifestyle. The opportunity cost would be a lot of missed adventures, activities, and travels while my daughter is with us, while she is still a child, and before she jets off into adulthood. It would be a lot of missed memories for me and for her. What value can you place on childhood memories?