My Top Sunk Costs (and How to Let Go of Yours)

sunk-costsI know only a little about economic theory, but, since learning about sunk costs from my roommate a few years ago, I’ve always found it fascinating. It’s not too hard of a theory to grasp. From the Wikipedia entry on sunk costs: “sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered.”

As an example: if I buy an iPhone and can’t return it or get its value back, that’s a sunk cost. But, if I’m not getting any enjoyment or value out of the iPhone, I shouldn’t keep paying for the monthly service just because I paid $200 for the iPhone to begin with according to the sunk cost fallacy.

Looking at the past, I’ve definitely failed on making good purchases a few times where I haven’t gotten as much in return for what I invested. Here are my top five sunk costs from my own life:

1. My car(s) – This has been the most frustrating on the list. I’ve gone through a few used cars now, and they’ve all been headaches at one point or another. My current crappy car has cost me thousands in less than a year. It’s actually disabled in front of my apartment right now, waiting for the next tow into the garage. I’d like to sell it at this point, but it’s hard to swallow all the repairs I’ve put into it. I expect that I’ll only get a fraction of that back when I finally do get rid of this car.

2. Rosetta Stone – A few years ago, I decided to embark on a journey to learn Chinese (Mandarin) using Rosetta Stone. I went all-out and purchased the 3 course version for about $500. Being totally naive, I didn’t realize that the software license agreement wouldn’t allow me to resell it after I used it (oops!)  The fact that I spent so much money on the software apparently wasn’t enough to motivate me to use it (so much for those theories). While I kept at it for a few months, I never even made it half way through the course and never actually learned to speak Chinese.

3. My college education – This is definitely the toughest one for me to let go of. Last August, I finished up six years of college education, earning both an undergraduate and master’s degree in Environmental Engineering. Luckily, I did this while finishing with only $8k worth of debt (something I’m definitely proud of). But I’ve yet to get a real job in the engineering field (by my own choice, as I’m currently serving as a VISTA until August 2011). After looking at the career prospects, I’m not sure I’ll ever want to get a job in engineering. At the same time, it’s hard to let my six years of college go. I have all that training, plus jobs in engineering are relatively easy to find and well-paid.

4. Bad restaurant food – This is an ongoing “sunk cost” occurrence, but I have a nearly impossible time wasting restaurant food (and most other food, for that matter). I’d rather stuff myself to the point of sickness than waste any food at a restaurant. I’ll also continue eating even if I don’t really get much enjoyment out of it. A now-legendary example that my girlfriend likes to bring up is how I refused to give up on a $4 vegetarian sushi roll even though we both decided it tasted awful.

5. Stock purchases – I’m sure this is a typical of many people. In the past, I’d watch stocks drop (think pre-2009). After going deep into the red on some companies, I’d hang on to them to merely hope that I could get the money back that I invested in the first place.


Based on sunk costs, I should just let all of the purchases go and not invest anything more into them if it’s not worth it. It was hard to see that at the time, but, looking back, it makes sense that to value these things based on the present and not the past.

Here’s how I have overcome these sunk cost cases:

1 – Realize the money (or time) isn’t coming back. In all of my cases, I couldn’t recover the costs that I initially put in to each of these things. Yet I still held on to them even though there was no point in doing so. As the sunk cost fallacy states, that time and money is gone, so it shouldn’t factor in to my decision going forward.

2 – Cut my losses. This means simply just moving on and forgetting about what was lost as quickly as possible.

3 – Move forward without looking back. It’s great to learn from the mistakes, but it’s useless to let those mistakes ruin your life in the future. Sure, I have two college degrees. But that’s over and done with. I need to make decisions looking at now, not looking at the past.

If we were able to fully embrace the sunk cost fallacy in life, it would make everything so much easier and much less stressful. After all, what’s the use in worrying about past events that you can’t control.

Do you have any examples of sunk costs in your life? Have you successfully been able to let them go? Let me know in the comments.

$ $ $ $

photo by: avlxyz

Comments

  1. My most recent sunk cost was my bike which just got stolen.  It was easier to let go since a friend hooked me up with a free replacement.  It’s a lot older than my bike was and needs some work, but a bird in the had and all that.

  2. good post.  I feel sunk costs are an interesting topic.  They can be hard to spot, and hard to admit to, in our own lives.

  3. Great post Jeffrey. I can certainly relate to the education example. Bachelors, masters, and now a stay at home Dad…..not for too much longer though. You’re right, all we can do is look forward and make better decisions.

  4. Dtrull80 says:

    Sunk costs are a fact of life,  but some examples like a car, have provided value to you. When you bought it, it was not meant to be an investment, but a service item. It has gotten you from point A to point B numerous times. Without it, you would have paid for train or bus fare to get to those far away places. I think Rosetta Stone is a regrettable purchase. It was not an impulse buy like you discussed before, but it is truly sunk at this point. And let’s not discount the college degree just yet.

    • I agree about the car. The main point I’m making about that is that what I’ve spent in the past to repair the car shouldn’t impact my decisions to repair it going forward. It’s the “I’ve put that much into it already” attitude that I’m trying to avoid.

      Don’t worry, the college degree isn’t off the table. I’m sure it will be an asset moving forward, but I have to make decisions now based on what I want to do, not just considering the fact that I already have this degree.

  5. I am always buying things that I don’t need because I have a sweet tooth for buying things that I really want.

  6. Perfect example of feeling obligated to eat more at restaurants – that sushi was AWFUL!! 🙂

  7. I think our new car and my student loans are my sunk cost. We have been careful over the last couple of years not to spend too much money on other stuff.

    On the job front, my husband’s company is hiring and if you are interested in working in healthcare IT, send me an email. His company always looks for engineers.

Speak Your Mind

*

Read previous post:
Starting a Meetup Group – For Productivity and Fun

After a combination of being bored in New Haven, wanting to meet new people, and a desire to learn more...

Close