Tuesday, 22 July 2008

The real cost of that hamburger, movie, or kid

Welcome to a guest writer, Aaron Stroud, who blogs On Financial Success. He provides plenty of down-to-earth writing around personal finance. Many thanks to Aaron for the guest post.

What do burgers, kids, and movies have in common? They all involve opportunity costs.

When you buy a burger, you can't use that money to rent a movie, pay down debt, or invest. And when you sit down to watch a movie, you've traded your time and money for two hours of entertainment.

Sometimes a movie is the best use of your time and money, but that's time you can't spend reading or walking in the park.

These alternatives–the missed opportunity to read, walk, pay down debt, or to invest–are the opportunity costs of picking one option over another.

So how much does a $2 hamburger really cost? Well, over the next 25 years you're missing out on:

  1. $65 if you carry credit card debt at 15%
  2. $9 in saved interest on a 200k mortgage at 7%
  3. $34 in missed retirement savings if you earned 12%

Perhaps it is worth rethinking your options before ordering that hamburger!

Oh, and the costs of children? Costs vary from family to family, but one thing is for sure—children are expensive. Fortunately they pay dividends superior to any stock.

Aaron Stroud shares reliable, easily followed steps to build wealth at On Financial Success. Subscribe to his feed to follow along or ask a question to direct the conversation.

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