Free is a special word in the human language. The idea of getting something without money causes people’s brains to fall out. People unwittingly waste hours of their time and thousands of dollars because they’re seduced by “free”. But, as economists will tell you, even if something won’t cost you a dime, that doesn’t mean it is free.
If you want to be productive, you can’t just assess how much time or money an activity costs you. You also need to assess what you could have alternatively done with those resources. These are known as opportunity costs, and too many people ignore them, wasting time, energy and money.
As an example, if you received a 6% return on a $1000 investment, you’d have an extra $60 in “free” money at the end of the year. However, if you had the opportunity for a 10% investment, you’ve actually lost $40 over what you potentially could have earned.
Opportunity Costs and Productivity
The value of time isn’t just what you can reap from a single hour of the day. It’s also what you could have gained from alternative ways to spend your time. Often when placed under this more critical light, our time appears far more wasteful.
In running this website as a business, I know of dozens of projects I can take on that I’m fairly certain will create a boost in revenue or value for readers. But even if a project can earn me a few thousand dollars without my spending a cent, it may have actually cost me money. By taking one project and not another, I’m paying opportunity costs.
Opportunity Costs and Socializing
Spending time with a group of friends isn’t a free activity. You may be giving up the opportunity for more fulfilling social relationships with people who actually share your interests. Investing in one relationship means you can’t explore new ones. On the opposite side, jumping between people makes it harder to develop a deep relationship with any of them.
Opportunity Costs and Guest Posting
The idea that spawned the title of this post was the result of a conversation with David Zinger [1], another blogger, over guest posting. For those unaware of the lingo, a guest post is when a writer gives an article to be published on a different website.
The source of our conversation was that I stopped having new guest posts on this website several months ago. The reason was that, although a guest post was “free” for me to use, it often confused readers and reduced the consistency of my writing. In addition, for every guest post I hold, that displaces another article I could have written.
Many bloggers have frequent guest contributors to their websites. Although this is a valid strategy, it has hidden opportunity costs. Just because it doesn’t cost them money, doesn’t mean hosting a guest post is free.
Be More Skeptical of “Free”
Last year, I stopped freelance writing. I had previously been writing articles for other websites at around $40-$60 per hour. If you divide my monthly income by the total amount of time I invest in this website, I’m probably still making less than this amount. I suspect many of my friends earning entry-level jobs at $15-$20 would be shocked that I would give up a role that paid well, wasn’t demanding and fit my interests.
However, $40-$60 isn’t the true price of that activity. When looking at costs, I can’t just consider the value of that time, but the value of any alternatives. Although the hourly rate may be lower, working on my own projects have the opportunity to contribute value for years to come, instead of just lasting for one month.
Here are some things that are often viewed as free (or almost free) but have other opportunity costs:
- Relationships
- Attending school on a full scholarship
- Grocery coupons
- Library books
- Extracurricular activities
- Guest posts (both writing and publishing)
- Using productivity software
- Email usage
- Reading newspapers
- Bank accounts (especially those with a low interest rate)
- Friends you spend time with regularly
- Watching television
Watch out for these costs. Often you’re paying dearly without realizing it. Although psychologically people make a distinction between money lost and money never had, they both have the same impact on your bank account. The same applies to your time, energy and attention span. Spend it wisely and watch out for opportunity costs.