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Opportunity Cost


How you spend your money, your discretionary money that is, is a matter of your personal choice but as long as it is YOUR choice then no one should criticise what you spend it on.

Having chosen to spend it, that money has gone. You have therefore lost the OPPORTUNITY to do something else with that money.

When you can identify chunks of money that you have spent and calculate what income you could be making by investing that money in something else that would earn you “x” dollars, the “x” dollars you do not have is the opportunity cost of what you spent your money on….honeymoon, deluxe wedding celebration, house, Lamborghini, European holiday, rental property, cellar filled with wine, Melbourne Cup attendance (especially if you live in Camooweal) and the list could go on forever.

As long as the money is available and “affordable” (that adjective has a number of meanings) one’s personal choice dominates but that still does not dismiss the FACT that one of the costs associated with everything you have paid money for, whether it is a car in the garage, the memory of a lifetime trip to see the Iguassu Falls or the $5000 cheque you gave your granddaughter as a graduation gift, all have an OPPORTUNITY COST added.

And this is continuous.

One tiny example. If you buy a house to live in for $300,000 and pay cash you are giving up the opportunity of earning about $480 a week by investing that money. If you invested the money and paid $300 a week rent (and did not pay rates insurance and maintenance) you would have an extra $200 a week to do other things with.

Of course the choice is yours.

Opportunity does knock more than once…..every time you have some surplus money to spend you have the opportunity to spend it or invest it. If you do not invest it then you wear the opportunity cost. Sometimes but not always that is money very well spent.