Forget sunk costs
[UPDATE]: I’m not the only web geek that thinks about this stuff. Chris from ParticleTree just posted about how to apply sunk costs apply to programming.
When I was in college, I didn’t care much about getting A’s. For some reason that desire left me after high school. But I made an exception for Economics 110, despite the professor’s warning that only 10 percent of the class would get an A. I learned two economic principles that completely changed the way I thought about things on a personal level– they didn’t just apply global finances. The first of those is sunk costs.
The idea is simple– it’s actually getting yourself to believe it enough to follow-through that’s difficult. It goes something like this:
There are certain expenditures (whether money, time, or effort) that cannot be reversed. Forget about them. All that matters is what your assets are currently worth and what resources you have available now and in the future.
A few examples of how not to respect the principle of sunk costs:
But I paid $***.** dollars for that!
It might be dress you haven’t worn in 3 years, a broken TV that you want to replace even though it’s only a month old, or a stock that you refuse to sell because you’re sure someday it will get back up to your purchase price. Forget it. The money is gone. Other than historical trivia, nobody cares how much you paid for whatever it was that you got. All that matters now is: what is your item currently worth to you, how much is it worth to others, and what’s the best use of that “asset.” More thoughts on this particular example in a future post…
But we’ve been dating for 7 years!
Ugh. I’m sure you’ve heard that one before. The more time, energy, and emotion you put into something, the more you feel like you have to somehow recoup your investment. Forget it. Your time, money, and countless whispered sweet-nothings are gone. Step back and look at your relationship now: today and in the future. Pretend you’ve only known them for 3 months and that you didn’t really buy them a $1000 necklace for Valentine’s day last year.
But we hate waste!
Controversial one here, at least in the Wood family. There were a few mantras I heard growing up, but none as regularly as this one. The principle is generally a good one– don’t be wasteful. Clean-up your plate. Make use of what you have. But the fact is, once that triple-decker ice cream cone is in your hand, it’s already “wasted.” It can’t go back in the container. It can’t make it over to starving kids in wherever. It’s just going to make you sick or fat. Don’t feel bad about tossing it. Just make sure you buy the small next time.
Recognizing sunk costs has really had an impact on my life in the past 6 years. I almost switched graduate school programs half-way through because of it. I made last-minute summer internship decisions that I otherwise wouldn’t have. I’ve sold barely-used computers, skipped flights, and actually walked out of movies that were boring. As a general rule, unless I have made a commitment to somebody, I try to consider my next steps by simply asking myself (and my wife) what’s best from here on out?, rather than what have I already been doing? Next time you find yourself hanging on to something only because you’re invested, forget it. Let it go. Do what’s best for today and tomorrow.
This entry is part of the simple advice series.