Learn more about moneyandinvestments with this collection
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The "Opportunity Cost" mindset
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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MORE IDEAS ON THIS
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From consumer to investor
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.
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Forming the habits of an investor
Investors put their money to work. They know that the money they set aside today sets them up for financial freedom.
- An investor puts any excess money towards investments that will earn more capital.
- They value learning new skills and think of ways to use it...
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Invest in yourself
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.
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How to switch from consumer to investor
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.
- Invest in yourself.
- Star...
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The chronic consumer
Consumers will remain consumers, even if their income increases.
- Negative spending habits can destroy your financial life, and disrupt your mental health and relationships.
- Credit card debt can put stress on the quality of your life an contribute to unhappiness.
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Discover if you’re a consumer
- You feel the need to reward yourself after a hard day of work by buying new clothes/accessories or eating out.
- Lifestyle creep controls your expenses. When your income increases, you buy a new car or a more expensive house.
- You reserve your credit card for unexpec...
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Calculating Opportunity Cost
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.
Opportunity Cost
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...
Opportunity Cost: You Can Do Anything but Not Everything
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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