Friday, 23 March 2012

Sunk Costs

This is the last of the MBA Monday posts (via DailyLit) that I'm going to talk about, and this is about Sunk Costs:

Sunk costs are time and money (and other resources) you have already spent on a project, investment or some other effort. They have been sunk into the effort and most likely you cannot get them back.

Of course this doesn't just apply to businesses, but to everyday life.  I just have to look around the house, in my closet, at my bookshelves, my sewing stash (though most of it came to me free) and  my hoard collection of magazines to see prime examples! 

The important thing about sunk costs is when it comes time to make a decision about the project or investment, you should NOT factor in the sunk costs in that decision. You should treat them as gone already and make the decision based on what is in front of you in terms of costs and opportunities.

He goes on with another business example, but I know this whole idea of Sunk Costs haunts people when they think about clearing out their clutter.   They punish themselves for clothing mistakes, hang onto books they feel they 'should' re-read, treat magazines as a source of encyclopedic knowledge to be treasured.  A downside of being interested in re-fashioning is that every lovely piece of fabric looks like it has 'potential'.  (Have you worked out yet that for 'They', read 'Shelley'?).

Several major blessings of late have been that Bill's son and son-in-law have each got interested in running, so I could easily pull out all the Runners World magazines for re-distribution.  The local community centre where I go sewing is having a book sale in a few months.  As all our books had to be boxed up in preparation for Bill's painting project.  The process of re-placing those books in the shelves has presented the perfect opportunity for re-assessing ownership.  Even Bill has been culling his collection.  I have been offering my books to the sewing ladies first, in return for all the nice books and fabrics they have given me, then the rest go to the centre.  The ladies often read their selections and bring them back for donation the following week.

It has just occurred to me that, having decided that I don't do cross-stitch projects any longer, I could go through that drawer and pull out some items that a few of the sewing ladies would enjoy!  I might get over those Sunk Costs yet!

Do you look around and see a lot of Sunk Costs?


Anonymous said...

Excellent post.

I do, I do! I see stuff in my closets, piles of books, and an old exercise bike. Purging feels so good, yet that sense of shame over having accumulated all the stuff in the first place can be a real impediment to getting rid of what isn't needed or wanted anymore.

I would love to frame that second quote about having to disregard the sunk costs when moving forward. It's true, in so many contexts. For me, I read: leave that shame behind, examine why the stuff was acquired in the first place without assigning myself guilt, then purge!

Anonymous said...

My biggest "sunk costs" would be a stash of things I accumulated for scrapbooking. I keep telling myself that once I retire I will resume this hobby...but I wonder. It seems to me like you are learning to 'hold things loosely.'

Anonymous said...

Dear Shelley, I really enjoy visiting your blog. It touches on several of my interests (personal finance, style, etc.) Have you thought about writing a section on how you were able to achieve early retirement? I (and I'm sure lots of others) would love to know how you did it. It is a great accomplishment!