Opportunity costs

One thing we often omit in financial decisions is opportunity costs. It’s a popular concept in business planning, but not so much in personal finance.

Yet, the principle is transferable. The textbook definition of opportunity cost is: “the loss of potential gain from other alternatives when one alternative is chosen”.

In other words, when you spend money on one thing, you no longer have it to spend on something else. And each thing you choose is any number of other things you can’t.

It isn’t so much that you have to think about all of it all the time, but it is something you should at least be aware of. When you’re making financial decisions.


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