For any individual, the use of opportunity cost methodology can help to clarify a given thought process or idea.
By comparing different structures, capabilities, or even decisions, we can better understand where we sit, relative to where we might go in the future.
An excellent example of the use of opportunity cost for individuals, is the idea of developing a side business while working a full-time position. This is something many of us face in our day-to-day lives. We badly wish to have our own enterprise, where we are our own boss -answerable only to our ambitions as individuals.
Unfortunately, the opportunity to build a side business can be costly. This is where a careful consideration and weighing of options can occur.
Terry enjoys his full-time position as a software developer. However, he is still a junior in his career and feels he must strike out on his own to make more money in the short-term.
To this end, Terry decides he would like to start his own business. His practice would include coding software on-demand for clients. He is diligent in his planning and has even considered the starting costs that would be involved.
However, when Terry looks at the opportunity cost, he realizes that he would have to turn down overtime -and overtime pay- in favor of building his business. This would mean he would be sacrificing guaranteed monetary gains, in favor of hopefully building a profitable enterprise over time.
Rather than lose his much-needed overtime pay, Terry foregoes his initial plan. As a compromise, he decides to only work on the business when he has personal time off.
In this way, Terry has compromised to favor the optimal opportunity cost. Albeit, while sacrificing the development of his personal project, he at least won’t be missing out on the overtime pay that would help him financially.