Opportunity Cost
The value of the next best alternative you give up when making a choice.
What You Need to Know
Opportunity cost is what you sacrifice when you choose one option over another. Every financial decision has an opportunity cost—the value of what you could have done with that money instead.
Wedding Example: Spending $30,000 on a wedding means you can't use that money for:
- A house down payment
- Retirement savings
- Emergency fund
- Investment growth
Investment Example: Keeping $10,000 in a 1% savings account has an opportunity cost of potential 7% stock market returns—about $600/year in lost growth.
Key Insight: Opportunity cost isn't just about money. It includes time, energy, and other resources that could be used elsewhere. The goal isn't to avoid all opportunity costs, but to make informed decisions about what you're giving up.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investopedia.com
https://www.investopedia.com/terms/o/opportunitycost.asp
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