Opportunity cost is the loss of potential gain from other choices when one alternative is chosen.
Every time you decide to buy something, you choose to lose out on investing that money. If you buy a brand new car you don't need for $30,000, you're missing out on the opportunity to invest that money into the stock market and lose out on compound interest. This means that you should not buy on impulse, but think of your money in terms of future value.
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A consumer spends money and follows trends while an investor puts capital to work and takes advantage of trends.
Chronic consumers often go broke, and persistent investors often get rich.
Investors put their money to work. They know that the money they set aside today sets them up for financial freedom.
Individuals who have bad habits ingrained in them will take more effort and self-discipline to make the change. Know that you are able to make a switch. It's okay to take baby steps and work your way to becoming an investor.
"Do not save what is left after spending; instead spend what is left after saving."
Investing in yourself is one of the best investments you can make. Marketable skills make you valuable.
Listen to content about investing, side hustles, and entrepreneurship that will inspire you. Keep a notebook and write down information that stands out to you.
Consumers will remain consumers, even if their income increases.
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The way to calculate the opportunity cost is to subtract the value of the option from the value of the alternative that is foregone.
Opportunity Cost = Return on the best foregone alternative - Return on the chosen option.
It is the estimated value of the best alternative or the best option that one misses out as a consequence of picking one particular option.
Example: Spending a limited resource, like Money, on healthcare, comes with the 'opportunity cost' of being unable to spend that amount on ed...
When mulling over multiple choices, the quality of any option cannot be assessed in isolation from its alternatives. The price you pay (or the sacrifice you make, or the benefits you give up) for doing what you’ve chosen to do instead of doing something else is the opportunity cost.
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