One thought on “Opportunity Cost”

  1. Mike Finley says:

    Opportunity cost helps you in deciding between one financial move vs. another based on making the best move with each dollar you have. Here is two examples.

    (1) You have a debt with an interest rate of 6.8%, while your savings account is earning .02%. You would be wise to put future savings on the debt instead of into savings AND it could also be wise to pull money out of savings (leaving what is needed for an emergency) to pay extra on that 6.8% loan.

    (2) You have a loan with an interest rate of 2.9%. You have money in the bank that is earning .2%. Finally, you have the opportunity to invest in your tax sheltered 401(k) at work into a total stock market index fund with an unknown rate, but with an expense ratio of .05%. Which one do you choose? Most folks would be wise to choose the stock index fund that has returned around 10% on average (it will fluctuate from year to year with some years where it will be below 0%) over the last 90 years.

    Inform yourself on this very important issue by reading Financial Happine$$ and What Color is the Sky as you get your money in the right place at the right time where it is working most efficiently for you. Financial freedom to follow!

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