Embracing Either/Or and Opportunity Costs

Tonya at Budget and the Beach wrote a thought provoking article last month that, among other things, discussed the dichotomy of the "either/or" versus "both" approach. In a nutshell, she posited that when you are presented with two good options, there are benefits, especially as a freelancer, of choosing "both" rather than one or the other. The either/or mentality represents a self-imposed glass ceiling of sorts, that unnecessarily limits your potential. While I agree that having both is a great option, this post takes the counterpoint and argues the merit of choosing between two good options.

The main characters in 30 Rock do a great job of illustrating this dichotomy. The plot device that drives the show is Liz Lemon's ongoing desire to have it all: the big career and the storybook romance and a family and a social life, to boot. Cue the inevitable failures, and hilarity ensues. Jack Donaghy, at times, provides the counterpoint: in business and in life he makes quick decisions between alternatives based solely on logic. To Jack, having it all is an illusion. Though he, too, is faced with dilemmas from time to time that tempt him to try and have both options, like when he tries to juggle relationships with a hot young newscaster, Avery Jessup (Elizabeth Banks), and an old flame from his youth, Nancy Donovan (Julianne Moore). When he tries to logic his way through the decision via the H.E.A.R.T. technique (Hard Equations and Rational Thinking), the results keep coming up even. Even darts don't help.

Liz and Jack's attempts to have it all are understandable. Choosing "both" spares us from the stress of having to make a tough decision. Part of the attractiveness of the concept of "both" is that you don't actually have to choose. But, normally, due to the finite nature of our finances and our time, we have to make a choice. And understanding the finality of those choices, along with their costs or trade-offs, can be a healthy exercise. Having to choose between two good options invites the beneficial process of prioritizing our goals and activities. And as Liz Lemon shows, there are consequences from trying to have it all.

But if we commit to our either/or choices, there are trade-offs. You get one thing, but give up another. In personal finance terms, our choices always have opportunity costs. Rather than fighting against the opportunity costs of our decisions or trying to sidestep them, it's helpful to embrace the option we are choosing, as well as accept the loss of the thing we are giving up, rather than chasing after both.

• When I decided to commit to my wife, what I gave up was the ability to play the field. I get my awesome wife, but give up on the world of available single women. This is an insanely good deal for me, but lots of men get into trouble when they don't understand or accept the trade-off they have made. Trying to get both sides of the bargain will eventually just result in another tradeoff: you now get to play the field again, but you lose your wife.
• When I pay off consumer debt or make extra payments to my mortgage, the trade-off is not being able to invest that money.
• When I spend money, the trade-off is not being able to use that money or to pay off debt or invest it or spend those funds on something else.
• When I watch an hour of television, the trade-off is that I cannot spend that hour with my friends, family, or on any other beneficial activity.

If I embrace the finite nature of my time & money, I start thinking of my decisions more holistically: both in their inherent value, and in their inevitable opportunity cost. As I choose a certain purchase, I am giving up other hypothetical purchases. The house on the beach that I decide to purchase, for as long as I own it, likely eliminates the possibility of the cabin in the woods.

I can anticipate the counterpoint. With the ever-present possibility for additional income, why not have the beach house and the mountain cabin? It's possible to buy both. Especially for entrepreneurs, income has no ceiling. Like Liz Lemon, why not try to have it all?

While I agree that income can be increased to any hypothetical amount, it is still unfortunately, for every year of your life, a finite amount of money. When we look back on the prior year to file taxes, none of us ever writes "Infinity" in the taxable income line of our 1040A. While the sky is the limit mañana, in the present our income is some limited figure and our spending (hopefully) is bound by that figure.

And even if my income is for some reason high enough to purchase a second home and that allows me to choose "both", that kind of misses the point. Those two purchases consumed a certain number of dollars that, by definition, can't be used on the multitude of alternative purchases available. As in nerdy discussions of science fiction plot lines, each dollar has an infinite number of possible expenditures in an infinite number of universes but, ultimately, in our universe, can only experience one of them.

Man, these similes are getting sloppy so that means it's time for me to wrap it up.

I'm hoping to give up on the idea of having it all, and to not let that be a depressing notion. I want to accept that having it all is a costly illusion, driven by the hedonic treadmill. When we decide to put extra money into early retirement investments, I want to be okay with the idea that the money now can't go towards meals out that we might really enjoy, or to a nicer Christmas gift, or whatever. And when I spend money, too, I want to be okay with the idea that it isn't being invested and that it's fine to give up on some returns. I want to get to a place where I'm at peace with the choices we make, and the things we gave up when we chose them. Mostly I want to give up on the notion of pushing for "both", and like Phoebe says, just be happy with the "enough" that I have and chose.

Thanks, as always, for reading.


*Photo of Liz Lemon is from jtbrennan at Flickr Creative Commons.