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Opportunity Cost



In financial terms, opportunity cost is best defined as the money you did not make but could have made if you invested it in something that made and will continue to make an income (including value accretion), instead of indulging in a money splurging whim or, more likely, in buying goods or services that you do not NEED (or perhaps it should be do not WANT?).


If you’re driving a Lamborghini instead of a Holden the dollar difference in price would probably provide sufficient income to fully service the Holden. To the extent that this “cost” is not really measured in dollar terms it either should be or could be depending on which of these vehicles you own.


The opportunity cost of a $5,000 set of golf clubs probably pales into insignificance compared with the money spent on golf club membership and green fees, but if you have a set of clubs of that value sitting unused week after week in your backyard shed it’s costing you about $7 per week just to house them.


You could spill that amount at the 19th hole….if you get there!