Opportunity cost is the value of the next-best alternative you forgo whenever you make a choice. In personal finance, this concept shows up constantly — for instance, if you choose to keep ₹5 lakh in a low-interest savings account instead of investing it in a mutual fund that might have earned a meaningfully higher return, the difference in potential growth you gave up is the opportunity cost of that decision.
Thinking in terms of opportunity cost helps bring clarity to everyday financial decisions — spending on a discretionary purchase today has an opportunity cost equal to what that same money could have grown into if invested instead, and prepaying a low-interest loan early might have an opportunity cost if that money could have earned more by staying invested. It's a useful mental lens for evaluating trade-offs, even when there's no single ‘right’ answer for every situation.