Is It Worth It?
By: Erin Voirol
Although Return on Investment (ROI) might seem like a term that should only concern investors and economists, when it comes to your time, energy, and money, you are an investor
as well. As such, you should always weigh the potential return of an opportunity against the costs that you may incur. Considering these costs in advance will reduce your chance of making an investment that doesn’t add up in the long run.
According to Investopedia.com, Return on Investment is a percentage based calculation that “measures the amount of return on an investment relative to the investment’s cost.”
To figure out ROI, you have to know the original cost of an investment and the earnings from the investment.
ROI = Earnings - Cost of Investment / Cost of Investment
So, if I could earn $1,500 from an investment that cost me $500, my ROI would be:
ROI = 1,500 (Earnings) – 500 (Cost of Investment) / 500 (Cost of Investment)
In this case, I would spend $500 to make $1,000.
Before you make any decisions, it’s important to answer the question: Is it worth it to spend $500 to make $1,000? The answer to this question will always depend on what is going into that $500.
One way to consider the worthiness of an action is to calculate its opportunity cost. According to Investopedia, “An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action” or what could’ve been gained had one chosen another path.