Topic
Opportunity Cost: What One Use of Money Costs Against Another
Money committed to one thing is not available for another, and the cost of choosing is whatever the alternative would have produced. That makes opportunity cost a property of a pair of options rather than of either one — which is why it cannot be read off a single product, and why a comparison has to be constructed rather than asserted.
A projected difference is arithmetic under stated assumptions. It is not a forecast, and a larger modelled figure on one side is not on its own a reason to choose it.
Start here
Three finished pages cover this subject, and they answer different questions. Start with whichever one matches yours. None of them assumes you have read the others.
Calculate
Opportunity Cost Calculator
Project two uses of the same money over the same horizon, under your own assumptions and each option’s own upfront cost. It runs entirely in your browser: UBWHY does not receive what you enter, stores none of it, and puts none of it in a link.
Understand
How to Compare Two Uses of Money Without Fake Certainty
Why opportunity cost only exists relative to a real alternative, what makes a comparison like-for-like, why a higher annual rate can start behind, and why the option that ends higher is not automatically the one to choose.
Read the explainer: How to Compare Two Uses of Money Without Fake Certainty
Compare
Starting now vs starting in five years
One monthly plan, one end date, two start dates: the ending-value difference, split into contributions never made and growth never earned.
Three different questions
- Calculate
- What do two uses of my money project to, and when does one overtake the other?
- Understand
- What makes a comparison of two options like-for-like rather than merely two numbers?
- Compare
- What does deferring the same plan cost, and how much of that is growth?
The three overlap as little as they can. The calculator computes; the explainer teaches the method and needs no figures at all; the comparison runs one controlled case in full.
What that looks like in one controlled scenario
US$500.00 a month at an assumed 6.00% a year, ending 25 years from today — run once from today and once after waiting 5 years.
- Starts today
- US$338,144.48
- Starts in 5 years
- US$226,719.32
- Difference in modelled ending value
- US$111,425.16
- Of which growth rather than contributions
- US$81,425.16
Outputs of a UBWHY calculation model applied to the assumptions above. They are not historical returns, expected returns, the performance of any product, or a forecast. The full assumptions, both plans and the complete decomposition are on Starting now vs starting in five years.
A projected difference is not a decision
Everything above prices one variable: what each path finishes at under one set of stated assumptions. Two real uses of the same money can also differ in:
- risk, and whether the two options carry the same amount of it
- liquidity, and whether the money can be reached when it is needed
- what a use of money does that is not financial at all
- the certainty of one outcome against the uncertainty of another
- tax, which is modelled nowhere in this subject
- inflation, so every figure here is nominal
- whether the alternative was actually available at the time
A larger modelled ending value describes an arithmetic gap under assumptions somebody entered. Whether the option that produced it is the right one is a separate question, and it is a judgement about a specific situation rather than something a projection can answer.
Nothing on this page or the pages it links is financial, legal or tax advice, and no product, provider or platform is named, ranked or recommended anywhere in this topic.
What this guide covers
The three UBWHY pages above are what has been finished on comparing uses of money. A new one is listed here when it is published, never before it exists and never as a placeholder for something that might.