Money is a wonderful invention. But have you, for a second, stopped and asked yourself what exactly is money? When you purchase a coffee from say Starbucks you hand over £1.95 and in return you get a nice (alright decent) tasting coffee. But what is the real cost of this coffee? Is it £1.95? Answer: No. That is not the real cost. The real cost of buying a coffee is the 'opportunity cost' and the opportunity cost is different for everybody.
What is opportunity cost?
Opportunity cost is the item/service/thing you could have bought for £1.95 that would have given you more pleasure than the Starbucks coffee. But you didn't buy it because you bought the coffee instead. And another reason why you didn't buy it is because you probably didn't know about it. Similarly when you go to the cinema you pay, say £10 for a ticket. The real cost of the cinema ticket is not £10, it is something else you could have purchased that would have given you more enjoyment than the cinema ticket. This 'item' could be a book, or a CD, or a meal in a restaurant, or a bottle of wine. The problem is we never really find out what this other thing is. When we buy something we just buy it. We never ask ourselves: can I spend this money on something else that will give me more enjoyment? This is because most things we get are impulse purchases determined by emotional factors and the whims of our lives.
The wise man (or woman) uses the concept of 'opportunity costs' to make more 'effective' money purchase decisions. How do you measure 'effectiveness' of use of money? Well the simplest and crudest way is to consider how much happiness you get from spending money one way rather than another. For example you could say: I will not spend £80 on this shirt from AllSaints. Instead, I will use the money to buy 2 books for £19, 2 DVD's for £20, a loaf of fresh bread and cheese, a bottle of wine, one cinema ticket, and a packet of cheesy Pringles' and a bubblegum. The opportunity cost is the item(s) you forgo by going down a particular spending route. You could buy a camera, or, you could go on holiday, or you could sleep with a prostitute. Which is it to be? It all depends on what gives you more pleasure or happiness. Measuring happiness is not as easy as it sounds. Most human beings mistake happiness for instant gratification. Happiness is a chronic state of the mind that it less prone to the pendulum like up's and down's of the human condition. Happiness is the microwave background radiation of our lives and those starburst moments of exploding nebulae (job promotion, becoming a parent or the first time, marriage, social acceptance etc) are spikes of brilliance in a static crackling background leftover from the birth of time.
Money is a gift. But it can also be a curse. Too often it becomes the reason for life rather than its lubricant.
poor is he who spends a fortune on a car that gives him measly pleasure
wealthy is he who spends a fraction of that on a trip to Outer Mongolia.
Lesson: fuck the car. Go to Outer Mongolia!
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