The Cost of the Sure Path to Prosperity

The idea of the weekend is here to make you a better investor.

Last weekend I share with you 2 ideas:

• Scarcity 

• The Sure Path to Prosperity (Time Preference)

Let's revisit our story.

You are in the center of a big desert.

All you can see is sand everywhere.

The sun is very hot. 🥵

You have a bottle in your hand, filled with the precious elixir of life, water.

You want to drink because you are very thirsty.

You could drink all the water now, but you need to think about what happens when it is all gone.

The alternative?

Carefully sip, rationing each precious drop, betting on the chance to find an oasis or some other source of life-giving water.

The Cost of the Sure Path to Prosperity

Choosing how to use our limited resources and time involves making some trade-offs.

Trade-offs refer to the potential benefits we give up when we choose one option over another

These trade-offs are also called opportunity costs.

Every decision involves a trade-off.

What is the best alternative you give up when you make a decision?

What trade-off should you accept?

In our story, you can do two things:

1. You can choose to drink all the water at once to fully satisfy your thirst;
    

2. Or, you can decide to sip it slowly, rationing the water over time.

1. Drink all the watter

In this situation, the opportunity cost is the chance to live longer.

Drinking all the water at once means you'll be hydrated now, but it also shortens how long you can survive before finding more water (in the desert).

You're risking a longer survival time for immediate relief from thirst.

This risk is called “opportunity cost”.

In other words..

You pay with shortening survival time to relief from thirst.

The cost of relieving your thirst is a shortened survival time.

This cost is called “oportunity cost”

2. Rationing the water over time

Let's imagine you decide to hold back and not drink all your water. 

This decision gives you extra time to search for more water. 

While exploring the desert, you find a cactus, a new source of drinkable water.

If you had drunk all your water out of thirst, you would've lost the opportunity to find this cactus.

When you sacrifice yourself to save water instead of drinking it all, you're giving yourself more time to find new ways to survive.

This sacrifice is the cost for having more survival time.

Having more survival time available to find more water is the opportunity.

Opportunity cost can help you evaluate the available options in a situation with limited resources so that you make informed decisions based on these evaluations.

Every decision we make involves a trade-off, which is the opportunity cost.

You might pay this cost right away or in possible opportunities in the future.

The Cost of the Sure Path to Prosperity is The Opportunity Cost.

We pay these costs with not just time and resources, but even money.

What is money?

We will discuss this in the next lesson.

P.S. Bellow you can find some links to learn more about this concept:

• What is opportunity cost (video)
  

• Opportunity Cost (investopedia)
  

• Khan Academy - Opportunity Cost