Opportunity cost: the invisible price tag
Lesson 3 of 11 in our free Good Debt vs Bad Debt guide: a 5-minute money game with the key points below.
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Questions you'll answer
Illustration: instead of the £40-a-month upgrade, Mo saves £40 a month for 4 years at 4% AER. Roughly how much would he have?
Which is the clearest example of opportunity cost?
Quick facts
- Fact: “Money spent on repayments can't also be building your emergency fund.” — Every pound has one job at a time.
- Myth: “Opportunity cost only matters for rich people with lots of choices.” — It matters most on a tight budget, where every £40 has to do a lot of work.
- Fact: “Clearing expensive debt can be a better use of spare money than saving at a lower rate.” — Paying off debt at 25% APR beats earning 4% on savings, once you have a small buffer.