Understanding Opportunity Cost

Many times, when I help someone with their finances, I discover that their biggest obstacle is that they don’t understand opportunity cost and the impact it has on personal finance. In order to take advantage of an opportunity, something else must always be given up. Opportunity cost is basically what you lose by choosing one opportunity and giving up the next best choice. For a basic example, let’s say you can choose between buying a meal out or putting $20 in savings. Each choice has benefits and drawbacks. If you choose the meal, you will likely have a good time, eat good food, and get a chance to relax. If you choose to save the money, you give up that good time and good food


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2 Responses to Understanding Opportunity Cost

  1. TP says:

    Thank you for this excellent analysis! This helped me to understand opportunity cost for my exam. Your examples were very helpful.

  2. AC says:

    These were fantastic examples that really brought Opportunity cost into light for me. Thank you!

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