In personal finance, the cost of one choice measured by the benefit of the best alternative given up is opportunity cost.
Money and time are limited, so choosing one use often means forgoing another. If $1,000 is spent on a vacation instead of being invested, the opportunity cost includes the potential benefit the investment might have produced. It is not necessarily a bill or a fee paid to another person.
The idea comes from economic decision-making and applies to saving, borrowing, education, work, and consumption. A decision’s opportunity cost depends on the best realistic alternative, not every imaginable alternative. It can include lost income, foregone interest, or time that could have been used elsewhere.
Opportunity cost is different from sunk cost, which is a past cost that cannot be recovered and should not determine a purely forward-looking choice. It is also different from transaction cost, such as a commission or fee directly charged for making a purchase or sale.