I once owned an SUV worth $1 million. No, really, I did.

I was in my 20s. Young and, well, stupid. I was showing off my success, and my status symbol of choice was a Ford Expedition. Like others my age, I was caught up in keeping up with the Joneses, so I signed on the dotted line, got the bank to loan me the money, and began to make payments. That one decision cost me $1 million. I know, no Ford should cost that much money. But it did—and here’s why.

I made $600 car payments every month for five years to own that hunk of metal. If I had invested that money in my 20s instead of driving it around, I’d have over $1 million at age 65.

That’s a classic example of opportunity cost.

Working Definition of Opportunity Cost

Opportunity cost is a fancy financial term that basically means this: If you spend money on this, then you can’t spend it on that. If you spend $10 on a book, you can’t spend that same $10 on lunch. Money spent on clothes can’t go toward your grocery bill. Every choice has consequences. You always give up something. Resources like time and money are limited. The problem is that most people don’t think through what a choice may cost, both in money and in time lost.

Take my example of buying an SUV. Not only did I lose out on the money I could have earned by investing, but I also lost time—five years of saving up for retirement. And when it comes to investing, time is your best friend (or your worst enemy).

Why We Don’t Think About Opportunity Cost

Let’s face it. Most of the time, we don’t stop to think about the opportunity cost of a purchase. We just open our wallets and fork over our money—or a credit card. We don’t stop to consider the impact of our spending. But why is that?

1. We live in an instant society. Who wants to save money until you have enough to buy something? Just whip out that credit card and take your purchase home today! You’ll also take home the interest. And every time you pay interest, you’re robbing your retirement savings.

2. We buy on emotion. Fear, anxiety, jealousy, anger, sadness—those are not-so-fun emotions. To feel better, we spend money. Here’s the problem, though: When you spend money carelessly, you’re adding another emotion—guilt.

3. We get sucked into social pressure. If somebody else has a new boat, then we need a new boat. Keeping up with the Joneses meets FOMO—fear of missing out. We picture others having fun and we want that too. We forget that the Joneses are up to their eyeballs in debt.

4. We get duped by marketing. For example, store owners might place a $200 jacket right next to a $75 jacket. That’s so we think we’re getting a bargain at $75, without ever thinking of what we are giving up by buying the cheaper jacket. That $75 left alone in an investment for 40 years adds up to almost $3,400. That may not seem like much, until we think about how many times we give in to those “bargains.”

The Biggest Reason We Don’t Count the Cost

I’m going to be honest with you now, so hang on. The biggest reason most of us don’t take the time to look at the opportunity cost is simple: We don’t want to. We don’t want to be responsible and accountable for our actions. If we look at the downside of our purchase, we might not get what we want—when we want it.

Time to Get Focused!

Opportunity cost can be summed up pretty easily: You can’t have your cake and eat it too. You can’t spend like you want now and expect to enjoy the retirement of your dreams later. It’s time to get focused on the future. If you haven’t already discovered your Retire Inspired Quotient, that’s the place to start. That way you know how much money you’ll need to enjoy the retirement you want.

If you take action now, you’ll get to enjoy an amazing retirement later. If you don’t, you’ll learn firsthand the cost of that missed opportunity.


  • Excellent post! I love that you calculated the opportunity cost when it was too late, hopefully someone else will do it when trying to make that decision and see it for the foolhardy choice it was/is!!

  • ChrisT

    I liked this article, too – not to beat ourselves up for past decisions, but instead to inform the future. My mom always says, ” is this a want or a need?” She will put things back at the grocery store, because she doesn’t *need* them (cute – she’s OK in her retirement… hmm, maybe that’s why?).

  • Trish Groves

    Opportunity cost is a new concept to me – I only read Retire Inspired over the 2016 Christmas holidays – and you explain it so well! No more car payments for me, ever. You can count on that!

  • Kelly Roman Krause

    Reading Retired Inspired by Chris, and wanted to throw out a hook about leasing cars – in my opinion a complicated opportunity cost situation. I just don’t feel it’s as simple as Chris and Dave Ramsey suggest. They feel buying, driving, and selling used cars is a more cost efficient way to transport than leasing – which Chris calls getting “fleeced,” in the book. As a school teacher (my husband is as well) I understand this choice and have made it for the last 10 years of my life. Used cars, in some cases, CAN save money – IF you don’t end up with a lemon that you have to pay costly repairs for every other month. Climate and location should be considered as well – I live in a northern 4 season location with lots of snow. Our cars take a beating. Neither I nor my husband are handy with cars, so if something goes wrong, we can’t fix it ourselves. We often don’t have enough cash to even buy a decent younger used car straight up, and have to take out a loan. Sometimes we find ourselves saddled with a 5-7 year old used car, a smaller loan payment, AND additional monthly or bi-monthly repair payments to make! The cars take a beating because of our climate, and are difficult to sell when we need to move into something new. We currently have 2 used cars and one bare bones leased vehicle (2 year lease) that we pay about $360 a month to drive. We use the leased vehicle for peace of mind when we need to make longer road trips, and we watch the mileage carefully. We already have over $3500 in repairs on The other 2 used vehicles. Would love to hear other’s thoughts on this topic!

    • Nebraska

      I see where your coming from on leases and I think that people have a negative outlook from what leases were 15 years ago. I’m almost 35 and just entered into my 4th leased vehicle. Who can actually maintain todays vehicles and not have to take a second loan out on costly repairs. I grew up in a family that owned repair garages and my father was a GM master tech and I remember back in those days (20+ years ago) the part needing replaced easily was more than labor but not any more!!!!! In my area the hourly shop rates range from $75-$125 an hour!!! Insane!!!

      I feel that in todays vehicle market new cars barely cost more than used. Plus you can use the equity gained in that leased vehicle and apply it towards another lease with no or very little money out of pocket. But that’s why I really push to lease well desired vehicles over very basic ones. So leasing really makes a lot more sense than ever.

      No I have a prime example of a used lemon. A kid that works at my company bought a used 150,000 mile 2009 Chevrolet Silverado truck for $15,000, then two weeks into owning needed new radiator ($500), then about one month later a shady mechanic told him his truck needed a new engine!!!!!! ($5,000) Ouch. I say shady because he took it to the shop driving just fine but had a check engine light on and gets a call the next day about needing a new engine. I strongly advised him to go get it and get other opinions. So he’s into a very used truck for around $21,000 that wasn’t worth the $15,000 before all this happened and that doesn’t include the cost to put license plates at about 8% on that $15,000. Scary and a great example of leases great appeal over buying used.
      Also you only pay taxes on the amount your using in that lease and not the whole purchase amount and in same areas like mine that’s a HUGE savings.