opportunity cost
Opportunity cost is what you gave up in order to choose something else, and it is the real price of every decision.
In plain English
Every naira has a second price that nobody puts on the label.
Spend ₦3 million on a car and the price is not ₦3 million. It is ₦3 million plus everything that ₦3 million would have become. Invested at 18 percent for ten years, it would have grown to roughly ₦15 million. So the car cost you ₦15 million, and you will never see the bill.
That is opportunity cost. What you gave up in order to have what you chose.
It applies to time as well as money, and often more painfully. Two years spent on a business that could never work is more than the money lost. It is the two years, and the version of your life that the same two years would have built somewhere else.
This is not an argument for never spending anything. A life spent optimising every naira is a poor life, and you should buy the car if the car genuinely matters to you.
It is an argument for knowing the true price before you pay it. Most people compare a purchase against their balance. The wiser question is what else this money could have become, and whether the thing you are buying is worth more to you than that.
You choose between ₦2 million on a wedding upgrade and ₦2 million invested. In twenty years, at 18 percent, that ₦2 million would be worth around ₦55 million. The upgrade did not cost ₦2 million. It cost ₦55 million, and one very good day.
Questions people ask
Does this mean I should never spend on enjoyment?
No. A life spent optimising every naira is a poor life. It means knowing the true price, then choosing deliberately rather than accidentally.
How do I calculate it?
Take the amount, and work out what it would become if invested for the time you would have held it. That figure is the real price of your alternative.
Does opportunity cost apply to time?
Very much, and it is usually the more expensive one. Money can be replaced. The two years cannot.
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