Monday, January 14, 2008

Thinking Analytically

When we were in our mid-twenties, Alan and I bought what had been his grandparents' house so that we could fix it up and turn it into a Bed and Breakfast. This after staying in ONE Bed and Breakfast for ONE NIGHT. EVER!!!! Did we do our homework on that one or WHAT?

It took six months to convert it from a duplex with drunken frat boys living in the upstairs apartment to someplace we thought anyone might want to stay.

Needless to say, the cashflow was very tight.

Late one night, we needed to do a bit of grocery shopping. After rummaging through our pockets and the ashtray of the car, we came up with enough cash to buy either milk or some lunchmeat. Alan was still working at General Motors in those days, and brown-bagging his lunches.

I don't remember which item we decided to spring for that night, but I clearly remember standing in the aisle of the 24-hour A&P in downtown Windsor (it's actually hard to forget a moment like that...), carefully weighing the benefits of lunchmeat versus milk.

It was then that I learned a very valuable economic principle, one that we forget at our peril: Money spent on A (let's say, lunchmeat) is no longer available for B (that would be the milk).

This principle holds true from pocket change all the way up to Federal budgets.

And it's a crucial one for us small-business owners to grasp.

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