Opportunity Cost

This or That

An opportunity cost is a profit or value of something that must be given up to acquire or achieve something else—the cost of missing an opportunity. Every choice you make in life has an opportunity cost because you could have been doing something else instead.

For example, if you spend $4 on lunch at McDonald’s, you missed out on the opportunity to invest that $4, which over many years could bring in a return of hundreds of dollars. That was the opportunity cost of eating a Big Mac.

With a credit card, there is a double opportunity cost. First, your future income is reduced by the price of whatever you purchase; you can’t use that money to buy other things. Additionally, you missed out on the opportunity to save that money and have it earn interest. The money that is not saved and could be earning interest would be considered a loss affecting your spending budget in the future.

Fun Facts:

  • If you spent the money on an original iPod in 2001 on Apple stock instead ($499), you would have earned approximately $14,514 today.