Opportunity Cost Calculator
Compare the cost of spending money now vs investing it to make informed financial decisions
Calculate Opportunity Cost
The amount you're considering spending instead of investing
Expected annual investment return rate
Tax rate on capital gains
Years
Months
Expected annual inflation rate
Results
Investment Decision: Investing would be profitable
Recommendation: Consider delaying the purchase and investing the money instead. You would earn money by waiting.
Example Calculation
Car Purchase vs Investment
Amount to spend: $15,000 (car)
Alternative: Invest for 2 years at 3% annual return
Tax rate: 22% on capital gains
Inflation rate: 1.5% annually
Calculation Steps
1. Nominal opportunity cost = $15,000 × (((1 + 3%/12)^24) - 1) = $926.36
2. Tax on capital gains = $926.36 × 22% = $203.80
3. Gains after tax = $926.36 - $203.80 = $722.56
4. Total savings = $722.56 + $15,000 = $15,722.56
5. Inflation adjusted = $15,722.56 × ((1-1.5%/12)^24) = $15,099.94
Opportunity cost = $15,099.94 - $15,000 = $99.94
Key Concepts
Opportunity Cost
The potential benefit lost when choosing one alternative over another
Compound Interest
Interest calculated monthly on both principal and accumulated interest
Inflation Impact
Reduction in purchasing power over time affects real returns
Decision Tips
Consider the urgency of your purchase
Factor in depreciation of goods you're buying
Account for maintenance costs if applicable
Compare with other investment options
Understanding Opportunity Cost
What is Opportunity Cost?
Opportunity cost represents the potential benefit you miss out on when choosing one alternative over another. In financial terms, it's the return you could have earned by investing money instead of spending it immediately.
How It's Calculated
Step 1: Calculate compound returns on investment
Step 2: Subtract capital gains taxes
Step 3: Adjust for inflation impact
Step 4: Compare with original amount
Key Assumptions
Real-World Applications
Major Purchases
Cars, furniture, appliances - compare immediate purchase vs investing and buying later.
Education Decisions
Weigh education costs against potential lost investment returns and future earning increases.
Business Investments
Compare equipment purchases with alternative investment opportunities.
💡 Pro Tips
- • Consider non-financial benefits like convenience, enjoyment, or necessity
- • Account for item depreciation and maintenance costs in your decision
- • Remember that some purchases may actually appreciate in value
- • Factor in the certainty of investment returns vs. guaranteed spending