Economics · Personal Finance

A Christmas Carol Is a Lesson in Opportunity Cost

Opportunity cost is the how you would spend your time or money if you chose your favorite alternative to the choice you are making. For example, I am tempted to add the extra sports package to my Sling TV account, but it costs an additional $11 per month. $11 doesn’t seem like much, but if put into my retirement account instead, $11 per month is $6,000-8,000 in future value. Using the 4% rule, that’s about $300 in future annual income, or about $25 per month in retirement income. So an $11 per month now costs me $25 per month later. That’s a heavy opportunity cost that one might not consider before making a seemingly small financial decision.

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