Recently some pf blogs have been doing cost-benefit analyses, but have been forgetting to take into account all of the costs. Here’s a gentle reminder of things that you should think of before concluding the analysis.
An opportunity cost is the value of the next best thing you could be doing/purchasing/etc. So the daycare cost of a baby isn’t zero when a parent stays home with the child, but instead includes the cost of that parent staying home rather than working. And that’s just the most basic opportunity cost, as we talked about before, there’s even bigger costs down the road for the career of the SAHP.
Hidden variable costs
It’s easy to think about the fixed costs for things– what you pay upfront, or what you must pay whether you use the item or not. But there’s also often per-use variable costs, costs that are only incurred when you use the item.
The cost of car ownership includes not just the purchase price of the car, not just the cost for insurance, but it also needs to include gas costs, repair costs, and so on.
The cost of cloth diapering isn’t zero after the diapers have been purchased. Calculations need to include water costs (and, of course, the opportunity cost of one’s time spent doing extra laundry and removing poo, though a hidden benefit may be earlier potty training).
Ignore sunk costs
If you’ve already incurred a cost, that shouldn’t count in your calculation– only the costs and benefits of your future potential actions should rationally count in your decision making. So it doesn’t matter if you’ve spent 3 (or 4 or 5) years in graduate school already, what matters is if the remaining 3 years are worth it.
What hidden costs are we missing?