Today one of my good friends and I were watching a sporting event on my TV at my apartment. I have a 32” flat screen TV that by my standards is pretty large. However, my living room has a lot of space, so it dwarfs the dimensions of the TV and makes it look small. I have been asked why I don’t get a bigger TV to mount on the wall such as a 55” or bigger plenty of times, and today I was asked again. I have been asked this question so many times that I felt compelled to write about it.
When I was in college, I remember having a small 17” flat screen Samsung that I got for my dorm room. Once I moved to my apartment, I decided to upgrade to a 32” just so I could actually view the TV from far away when I was sitting on my couch. It was a completely functional upgrade. I seldom watch TV for hours on end. I watch few shows and some sporting events when I sit down to eat at my apartment. I also use the TV to play my old Super Nintendo games from time to time when I am bored. Otherwise, I am not a huge fun of just sitting down to watch TV as my main activity.
Because of the fact that I don’t use my TV as much as the average American does, I don’t think I would derive a whole lot of extra utility from having a monstrous 55” TV as opposed to my 32”. Of course, anyone who knows me also knows that I am considering the opportunity cost of buying a new TV as one of the factors in my decision. A 55” LED Samsung TV costs about $1,100 right now at the time of this article. So as always, let’s take a look at the opportunity cost of purchasing a new TV. If I invested that $1,100 with an assumed rate of 10% until I am age 65 then I would have about $59,000 in savings. Because I think I would derive about zero increase in utility from having a bigger TV that would be a waste of $59,000 for me. Maybe not for you, and maybe not for anyone who loves to have house parties to entertain guests, but for me it would make zero sense to buy a bigger TV.
My friends and society in general seem to think that big TV’s are so awesome that the cool factor alone merits purchasing one. This is a good example of making a decision based on your own needs and not what others think. If you go through life trying to act cool or look cool by buying things to show off to other people then you will forego millions and millions of dollars in opportunity cost. At some point you have to ask yourself if being “cool” is worth it. Many people don’t realize that they are making $10,000+ decisions every time they buy a new Coach purse or Burberry scarf. I can’t help but think at least some of these people would change their behavior if they knew the monetary consequences at hand. It is a different thing entirely to be making these purchases if they represent a small amount of your monthly income; however, I see medical students in hundreds of thousands of dollars in debt make these decisions every week. I don’t disagree with their spending habits as I am sure it makes them happy, but I do wonder if they actually know how much in opportunity cost they are giving up. My guess is that they do not know.
I try to reiterate a running theme on this blog, and here it is again. You do not have to be a high earner or lottery winner in order to become very wealthy in life. For many people all it takes is the discipline to make a series of sound financial decisions throughout life. They add up very quickly. After all, we just saw that buying a new TV would cost me about $59,000 in future money. The effects are amplified with even bigger purchases. Some pieces of nice jewelry, fancy cars, and many more purchases are all million-dollar decisions whether you realize it or not. Make a habit of taking opportunity cost into account when making decisions and you may find yourself with a multi-million-dollar account one day that resulted from nothing more than a life’s worth of seemingly inconsequential small financial decisions.