Chapter Seven

Indispensible Economic Principles

Part 1: Opportunity Cost

This economic principle is powerfully affecting your finances - negatively – right now. It always has and always will unless you take control. Here is the official definition:

“The opportunity cost of using resources in a certain way is the value of what these resources could have produced if they had been used in the best alternative.”
Mansfield, E., 1977, Economics, Principles, Problems, Decisions

We know that an invested dollar can grow and a spent dollar cannot grow (it can’t grow for us, but can grow for whoever we give it to). We lose the opportunity to benefit from the growth of the dollars we spend.

While that is obviously true for every dollar we spend, our concern here is the lost growth suffered from unnecessary costs - costs that we create ourselves – including excess taxes, interest paid, interest lost (not earned), fees, and certain insurance costs.  

Alternatives to the way we do things in our finances are often not obvious. But, they exist and are often very simple. However, by following the lead of the financial industry and doing things the way they want, we typically fail to seek alternatives; and, it is the financial industry that reaps the benefits from that failure.

Utilizing effective alternatives that reduce or eliminate financial costs, and allow those saved costs to be kept and invested, is the easiest road to increased wealth and financial security. For a few examples of common areas of Opportunity Cost that can be easily reversed, please click Next.

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