The term “opportunity cost” is thrown around a lot but many people don’t fully understand the concept.
Opportunity Cost can be defined as
the cost of something in terms of an opportunity forgone…or the most valuable foregone alternative (Wikipedia).
Basically, everything you do has an opportunity cost which is what you are giving up for what you are doing. If you sleep late, the opportunity cost is whatever you may have done in the morning instead. When you buy something the opportunity cost of the item is whatever else you could have done with that money (or even with your time shopping for the item).
Why is this concept important? Whenever you make a decision, be it with money, life, whatever, you should look and see what the opportunity cost of that decision is. This makes you stop and think about whether what you are about to do is worth it. Is there a better action? Is my time better served? Can my resources be better used? These are questions that should cross your mind.
In terms of personal finance this is looking at what you do with your money and figuring out it’s true worth to you. See, an important aspect here is what your values are. Is it better for you to redo your kitchen or put more money away for retirement? There isn’t necessarily a “right” answer for this. The decision is yours. You should be aware of what other opportunities you will miss when you make your decision.
Try to think about the things you do today and figure out the opportunity costs. Will it change any of your decisions?
Let me know.
latrice brown says
latrice monet brown should get paid because she had this job for a job like this for like 10 years and I only got 50 dollars don’t give joy my money don’t give the bro guy my money dot give kevin my money don’t give carnisha no moneygive me 70 bucks a day.
latrice brown says
latrice monet brown would like to get 1 million dollars at bank of America to night