What is Opportunity Cost?

Opportunity cost is the money you didn't make by choosing something else. It's about the investment you missed out on.

Investors and stock market experts often talk about it. It's not always important for every deal. But, most people ignore it when making money choices.

I wrote about whether to pay off debt or invest. This choice comes when you get extra money, like a bonus or inheritance. I looked at both sides without picking one.

I have a preference, though..

INVEST

Always.

I'll explain why I think so.

Scenario

You owe $100,000 to the bank.

You pay 4.25% interest annually for 10 years. Your monthly payment is $1,024.38.

In 10 years, you'll pay $22,925.04 in interest.

Now, imagine you win $100,000 in the lottery.

What do you do with it?

If you pay off your debt, you gain three things:

1. You save $1,024.38 monthly. This is money you earned after taxes.

2. You save $22,925.04 in interest. This is money lost.

3. You won't owe the bank $100,000 anymore.

Your net worth is zero, but you're debt-free.

If you invest the $100K in a dividend stock:

Like Bank of Nova Scotia (TO:BNS) with a 4.64% dividend yield:

1. You earn $386.66 monthly in dividends (paid quarterly).

2. Your loan payments drop to $637.72 monthly if you use dividends to offset payments.

3. Or, you can keep paying $1,024.38 monthly and reinvest dividends for more returns.

4. You have a $100,000 nest egg for life.

5. Bank of Nova Scotia has raised dividends every year, so your dividend will grow.

6. The stock price will likely rise over 10 years, increasing your wealth.

7. The value of debt decreases over time due to:

1. Payoff over time

2. Inflation makes debt worth less

3. Use dividends to pay off debt faster, reducing interest paid.

There are more reasons to invest than to pay off debt. Some people can't sleep due to debt or market uncertainty. It's important to know yourself before deciding. If debt worries you, pay it off. If you're less worried, invest.

Do some research to find higher dividend stocks. Sign up for my newsletter to get my FREE stock picking guide for some good starting points.

Money Mindset

Not everyone is committed to wealth building. We fight our instincts to survive and money principles aren't always easy to understand.

In order to build wealth:

We need to have a long-term perspective…BUT…We often look for quick fixes.

We must have self-discipline…BUT…It's easier to follow the path of least resistance.

Using our heads, not emotions, is key…BUT…Money can cloud our judgment.

When deciding what to do with extra cash, do the math. Think about what you'll miss out on. Dream big about the possibilities.

If you're unsure, take time to learn about investing. It's an investment in yourself.

Read Books

I've written books to help you invest and build wealth. They offer simple steps without needing extra money. I also have an online course for a step-by-step guide to wealth.

I recommend these 5 books for a solid start. They're essential for becoming a money magnet. MJ Demarco's book is also life-changing.

Luck happens when you're prepared. Learning about money and investing can lead to financial freedom. Be ready for opportunities.

Good luck, my friends!