Every decision we make carries an opportunity cost. If we don’t budget wisely, we end up wasting time and energy on things that don’t matter. Here’s how to do it right.
Economics teaches you that making a choice means giving up something. — Russ Roberts
The disregard of tradeoffs and opportunity costs play out in the same pattern again and again in our lives. We try to do everything and end up accomplishing nothing.
If you’re young, you think you can go all out in your career, have fulfilling relationships, travel on a regular basis, keep up with reading and social media, go without sleep, take out unnecessary credit card debt, and start a family at the same time. The end result is always a total meltdown.
Even if you are twenty or thirty years past this point, you are not immune. Every day we are faced with choices on how to invest our time, and we all can be guilty of the same thing: Taking on too much without properly understanding the costs. The problem is a misunderstanding of the importance of tradeoffs.
The dismal science
It’s not always that we need to do more but rather that we need to focus on less. — Nathan W. Morris
Economics is all about tradeoffs. A tradeoff is loosely defined as any situation where making one choice means losing something else, usually forgoing a benefit or opportunity. We experience tradeoffs in zero-sum situations, when a plus in one area must be a negative in another. A core component of economic theory is the study of how we allocate scarce resources and negotiate opportunity costs.
Economics offers tools that we can use as guides for getting what we want out of life if we take economic lessons and apply them to resources other than money. We all know our money isn’t infinite, yet we end up treating our time and energy and attention as if they are. Many of us act as if there are no tradeoffs—we can just do everything if we try hard enough. The irony is that those who know how to make tradeoffs can get so much more out of life than those who try to get everything.
That’s not to say we can’t get more out of our time investments, while staying within the limitations imposed by mental and physical health. We can get more efficient in certain areas. We can combine activities. We can decide to focus on one area for a while, then switch to another. We can find plenty of smart ways to achieve more.
But blindly trying to overstuff our days and stretch our minds to their limits is foolish, whatever the self-help gurus and hustle porn promoters claim. We’re sold the false belief that we can be and have everything. As Julian Baggini writes in What’s It All About?: Philosophy & the Meaning of Life, a person in a content, long-term relationship might feel the pressure to get everything right:
They may well be an excellent life partner. But perhaps they are not a sexual athlete, the world’s best communicator, the possessor of a great body, a domestic god or goddess. In their local bookshop, however, they will be told by a book that they can and perhaps should be all of these things. This can foster feelings of inadequacy.
The truth is, when you’re trying to get everything right, you’re getting nothing right.
No one has everything
When we look at other people, we end up getting the impression that they are managing to do everything. They are fantastic parents, their relationships are novel-worthy, they look amazing, their careers are epic, they get enough sleep, and they feel good all the time. This, however, is far from true. We’re just not seeing the hidden tradeoffs they’re making.
Tradeoffs can take a while to become apparent. They sometimes only show up in the long term. We see this in complex adaptive systems. Try to optimize one area and there’s likely to be a price elsewhere. Sometimes it’s an obvious negative equation, like when steroid abuse leads to organ damage, or when fancy houses mask crippling debt.
But often the tradeoffs are genuinely hard to evaluate—people with world-class math abilities are often socially clueless, and many parents sacrifice career advancement to raise their kids. We all have to make sacrifices to be able to invest in what is important to us. Tradeoffs imply that to get really great at a few things, you have to accept being mediocre at a lot more.
There are no solutions. There are only trade-offs.
— Thomas Sowell
Most of us can divide up our lives into a few important areas: work, health, family, relationships, friends, hobbies and so on. It’s an unfortunate truism that we can never quite keep everything in balance. We’re constantly going off-kilter in one area or another and having to make course corrections. When one area goes well, another is usually sliding. It’s like a game of whack-a-mole. Focus on one area and it’s often to the detriment of another.
If you feel like you’re always behind on some area of your life, it’s probably a sign to reconsider tradeoffs. If you feel like you’re always running in place without making any serious progress on anything you care about, you’re probably making the wrong tradeoffs. We often end up allocating our time, and other scarce resources like money, by default, not in the way that gets us what we want.
How to take tradeoffs into account
The necessity of making trade-offs alters how we feel about the decisions we face; more important, it affects the level of satisfaction we experience from the decisions we ultimately make.
― Barry Schwartz, The Paradox of Choice: Why More Is Less
One of the most important areas where we need to pay attention to tradeoffs is when we make decisions. It’s not always enough to consider what we stand to gain from going for option B over option A. We also need to take into account what we lose.
Most big decisions involve major tradeoffs. That’s not necessarily a bad thing. It’s neutral. It’s just the price we pay. Simply being aware of the notion of tradeoffs is enough to change the way we make decisions.
Time is our most fundamental constraint. If you use an hour for one thing, you can’t use it for anything else. Time passes, whatever we do with it. It seems beneficial then to figure out the means of using it with the lowest possible opportunity costs. One of the simplest ways to do this is to establish how you’d like to be using your time, then track how you’re using it for a week. Many people find a significant discrepancy. Once we see the gulf between the tradeoffs we’re making and the ones we’d rather be making, it’s easier to work on changing that.
For instance, understanding tradeoffs in time usage is a good way to cut out unwanted, unhelpful behaviors and wastage. It’s one thing to tell yourself you’re not going to spend half an hour reading the news every morning before starting work. It’s another matter to plan how you’re going to spend that time instead. Will you finish work earlier and cook a fancier dinner, or Skype with a friend who lives abroad, or read a chapter of a book?
The higher the value is of what you could be doing versus what you are doing, the greater the opportunity cost. We’d all agree that we’d rather devote our time to activities we value, yet we can end up not acting that way out of habit or obligation or simply because we haven’t considered what we’re forgoing. We will never manage to get rid of everything that has low value to us, but we can keep cutting it back.
Multitasking as a way of getting more out of our time without making tradeoffs doesn’t work. The tradeoff in that case is often not doing anything particularly well. If you answer emails when you’re with your kids or friends, you’re not really focusing on either. Your emails are banal and the people you are with feel unimportant. Even if we try to find ways around fundamental constraints, the tradeoffs show up somewhere.
The final requirement in order to take tradeoffs into account is that you really need to be able to let go of not being great at something. If you’ve chosen to prioritize your relationship with your kids over a clean house, then you need to be okay with letting other people see the mess. If you’ve prioritized physical activity over entertainment, you need to accept that other people are going to tease you for being ignorant of what’s going on in the world. If you’ve chosen to focus on your career versus maintaining every friendship you’ve ever had, you need to get over the pang of hurt when people stop inviting you out.
Tradeoffs aren’t always easy, which is probably why we try to avoid them.
If we think we can have it all, we’re more likely to end up with nothing. We can get much farther if we decide where to focus our energy and which areas to ignore. When we actively choose which tradeoffs we want to make, we can feel much better about it than when we’re forced to let things slide. We need to actively decide what we value the most.
Each of the myriad decisions we make on a daily basis carries an opportunity cost. If we don’t consider them, we easily end up stuck in situations where we’re forgoing things we’d rather prioritize. We end up lamenting what we’re missing out on against our will, unsure how this happened. But if we first consider the tradeoffs associated with the decisions we make, we can end up with far more satisfying choices.