Computing for Opportunity Cost

You have a set amount of money to invest. Before you jump into the first interesting scheme that comes your way, think about opportunity cost. Basically, it’s what you miss out on by grabbing one alternative instead of another—say, $500 on a computer (which you can use for an online business), putting the money in a mutual fund, or going on vacation.

In order to weigh opportunity cost, think of possible yield, risk, and future value. An online business can deliver good profits, but are you willing to put in the time to run it, or do you have the funds to develop it, if needed? A mutual fund is certainly less time-consuming, and depending on the mix of investments, can be medium to high risk. And a vacation is great, but you’ll be spending money, not earning it—although some say memories are priceless.

It’s really your decision, but make it an informed one. Before you spend, or invest, anything, think about what you’re giving up in exchange.