What Is Opportunity Cost? Meaning & Example
Definition
Opportunity cost is the value of the next-best alternative you give up when making a choice. It reminds you that every dollar spent could have been used another way.
Related terms
A budget is a plan for how you will spend, save and invest your income. It helps you direct money toward your priorities instead of wondering where it went.
Compound InterestCompound interest is interest earned on both your original money and the interest already added to it. Over long periods it can make savings grow much faster than simple interest.
Time HorizonYour time horizon is how long you expect to hold an investment before you need the money. Longer horizons generally allow for more risk because there is time to recover from downturns.
What is Opportunity Cost?
Opportunity cost is the value of the next-best alternative you give up when making a choice. It reminds you that every dollar spent could have been used another way.
Can you give an example of Opportunity Cost?
Spending $3,000 on a new gadget means that money is not invested and growing for the future.