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Finance: What is Opportunity Cost? 348 Views
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Description:
What is opportunity cost? In short, it's the eventual monetary cost of choosing to do one thing over another (often choosing travel or experiences over their monetary equivalent). That contract guaranteeing you $100k a year might sound terrific when you're staring $200k of student loans in the face, but if it locks you out of a much higher paying job five years down the road, you can kiss wealth and financial success good-bye.
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- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Financial Responsibility
- Finance / Personal Finance
- Life Skills / Personal Finance
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Bonds
- Terms and Concepts / Credit
- Terms and Concepts / Ethics/Morals
- Terms and Concepts / IPO
- Terms and Concepts / Regulations
- Terms and Concepts / Tax
- Terms and Concepts / Trusts and Estates
- Terms and Concepts / Wealth
- College and Career / Personal Finance
Transcript
- 00:00
Finance What is opportunity cost All right Opportunity cost the
- 00:07
value you forfeit by choosing a path a over path
- 00:10
be and path a end or b can mean doing
- 00:13
nothing at all right Here's an example Opportunity cost people
- 00:16
Let's say you have a choice of taking two jobs
Full Transcript
- 00:19
One is a safe steady gig with ibm You have
- 00:21
to commit to working there for twenty five years But
- 00:24
the big blue boss has promised that at the end
- 00:25
of that time period you'll get a good watch and
- 00:28
a million dollars twenty five years and a million bucks
- 00:31
and a reasonably decent lifestyle with low risk All right
- 00:34
well that's half a two years into the gig You
- 00:37
notice that a lot of your friends are whining about
- 00:39
taxes and they're buying porsche's You're still paying off school
- 00:43
loans working for ibm there Then ten years later your
- 00:46
friends or buying jets What happened Well they went to
- 00:50
work for a risky start up in silicon valley and
- 00:53
got stock options And of course you think we'll shoot
- 00:56
Where can i get me some of that Well you
- 00:58
committed to the safe steady big blue for twenty five
- 01:02
years you uh paid them with your commitment And in
- 01:05
the process you gave away other opportunities You might have
- 01:09
had teo make real bank by your own jets The
- 01:12
opportunity cost of your desire for a nice safe job
- 01:17
cost you big If you had been lucky enough to
- 01:19
get a Job at 1 of those hot startup you'd
- 01:20
be flushed with cash today just like your buddies All
- 01:23
right Another example And this happens to be a common
- 01:25
google interview question You win two free front row tickets
- 01:28
to a sick poppy's concert which sell on stubhub for
- 01:31
a thousand bucks each You decide to go to the
- 01:33
concert How much did the tickets cost you They were
- 01:36
free You say uh no You could have taken ninety
- 01:39
seconds fill out stub up form and gotten too grand
- 01:42
just selling them You chose not to receive the two
- 01:45
grand go to the concert instead which in a land
- 01:47
of opportunity cost lost is the same as paying two
- 01:50
grand for the tickets In other words money earned and
- 01:52
money lost It is not just counted by the dollar
- 01:55
bills that flow in between your fingers It's the value
- 01:58
in opportunities you take and in the value of the
- 02:01
ones you miss So when you see an opportunity take 00:02:04.09 --> [endTime] it especially if it gets you frequent flyer miles
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