Opportunity cost

Opportunity cost is the value of the next-best alternative you give up when you make a decision.

Simple example:

You spend €5,000 on a holiday. The opportunity cost: you could have invested that €5,000 in an ETF. At a 7% return, it would have grown to €19,300 in 20 years. So the holiday doesn't "cost" you €5,000 but €19,300.

Does that mean you should never go on holiday? NO! It means: make decisions CONSCIOUSLY. If the holiday is worth €19,300 of future value to you – perfect, enjoy it. But know what you're giving up for it.

Where opportunity costs really hurt:

• Leaving money in your current account: €20,000 at 0% instead of 7% in an ETF = €57,000 opportunity cost over 20 years
• New car instead of used car: €15,000 price difference in an ETF = €58,000 in 20 years
• Investing too late: starting 10 years later at €200/month = €140,000 less at 65