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Opportunity cost, like the submerged portion of an iceberg, is a part of your financial decisions hidden from view. While odorless, colorless, tasteless, and silent, opportunity cost is a threat to your wealth creation. This wealth restrictor is no respecter of persons or purchase types. Opportunity cost is the tag-along to every financial decision you’ll ever make, whether you finance or pay cash. Because a dollar is a seed, every time a dollar leaves your economy, it takes along with it the harvest it had the possibility to create in your lifetime.
The repercussions of every choice to use your money continue to echo throughout the rest of your life and legacy. And just as with icebergs, what’s beneath the surface, is often more important, and much more substantial.
Table of contentsEarlier in the Series on DebtThe Whole Truth About the Whole Cost of FinancingWhere Opportunity Cost Fits into Your Cash Flow System#1: The Concept of Opportunity CostThe Cost and Opportunity Cost of FinancingWhy Paying Cash Seems More Sophisticated Than Using a LoanBut Paying Cash Is Expensive, TooYou Finance Everything You BuyIf There’s a Cost, There’s Always a Corresponding Opportunity CostOpportunity Cost over TimeYour Wealth PotentialEvery Dollar That Exits Your Personal Economy Erodes Your Wealth PotentialPaying Cash Resets the Compound Interest CurveComparing the Opportunity Costs of the Saver and the StewardEnsuring a True ComparisonVisible CostOpportunity CostSo, Who Wins?#3) Determine the Best Financing DecisionsStart Creating Wealth TodayThe Whole Series on DebtBuild Your Time and Money Freedom
Earlier in the Series on Debt
Previously, in Why Debt Free Doesn’t Make You Financially Free, we demonstrated clearly what debt is and what it isn’t, and that rushing frantically to pay off loans may be one of the riskiest financial moves you can make.
Then, in The Right Way to Spend Money: Spender, Saver, or Steward? we discovered the limitations of both the Spender and the Saver. We also uncovered the superpowers of the Steward to create wealth through control, access to capital, and uninterrupted compound interest.
The Whole Truth About the Whole Cost of Financing
Now, let’s pull the curtain back to look at the behind-the-scenes cost of financing. We’ll help you discover the truth, the whole truth, and nothing but the truth, in each method of financing. You'll see why your purchasing method, more than what you purchase, makes the most difference in your control or loss of control.
We’ll answer:
What are the real, costs of financing over time?What are the real, costs of paying cash over time?How do I evaluate the entire cost of my financing options to make the best decisions that give me the most control?
Instead of considering only the face value cost and judging the book by its cover, you’ll gain insight into the opportunity cost of any capital outlay, so you can understand what’s inside each purchasing decision. Rather than purchasing big ticket items in a way to avoid something out of fear, you’ll see the path to making empowered decisions that increase your wealth potential. You’ll go from taking mental shortcuts in purchasing that make you lose control, to a system of thinking that puts you in greater control.
Where Opportunity Cost Fits into Your Cash Flow System
Limiting your opportunity cost is just one part of your Survival to Significance Cash Flow System.
The more you reduce the money leaking out of your control today, the smaller your opportunity costs over time. Consequently, the more wealth you have to protect and turn into streams of income.
#1: The Concept of Opportunity Cost
The Cost and Opportunity Cost of Financing
It’s easy to see that when you pay with a loan or credit, you’ll pay interest. That’s the part of the financing decision above the surface, the cost of financing at face value.
But over time,