Sunken Costs

Hey! Welcome back to The Brown Parachute Club. I hope you enjoyed last week’s article about Automation. What an uplifting piece that was! This week I decided to cover a topic I have been thinking about recently, Sunk (or Sunken) Costs. These are defined as a past cost that has already been paid and can’t be recovered. Like that vacation in Hawaii. You had a great time in paradise, but the money you spent on that trip is long gone.

There are many ways to look at sunken costs. Financial, obviously. However, there are more personal ways to look at it as well. What if you spent 3 years working on a degree in a field that is no longer viable, or of interest you? What if you have a friend who is a constant drain on your time and energy, who provides nothing to you in return? Those are other ways that sunken costs may be controlling our lives without realizing it.

The main category is Financial, of course. The biggest sunken cost for most people is their house. Cars come in second, but your house is the one cost that will actually increase in value, instead of depreciating at an alarming rate. If you want proof of this, buy (lease) a new car. Then drive into the McDonald’s parking lot next door and check the value of your new “used” car on TruCar or Kelly Blue Book. That little jaunt to the McDonald’s just cost you thousands of dollars in depreciation! Yikes!

Sunken costs are a very emotional thing. You bought that old Model T years ago, with hopes of restoring it and driving it in the Woodward Dream Cruise. If you sold it for 25% of what you bought it for, you wouldn’t just be losing 75% on your investment. You would also be taking a hit to your pride and feel guilty you didn’t take the time to restore the car to its original 1910 condition. Loss of investment and guilt are not a good combination.

Sunken cost avoidance runs rampant in the business world. Due to the time and money already spent on a project, companies who spent the past 2 years getting updated to the latest and greatest technologies often find they are unable to shift gears fast enough and make changes when they should. Never mind that all the “New Tech” became obsolete about 6 months ago! How would you like to be the Project Manager explaining that one to the CEO? Queue the flop sweat.

From your Career perspective, sunken costs can cripple your decision making. You know you should start to learn new skills. However, you just completed your “Data Processing” degree last month, and you are loathe to start all over again. That’s why staying up to date on the latest trends is so important. As I mentioned in my article on Automation, you’d better see the handwriting on the wall and upgrade your skills. Otherwise, when it all hits the fan, you’ll find yourself out of a job with no end in sight!

The silver lining about the times we live in is that there is no end to the amount of learning you can do! I don’t know if you have heard about TED Talks on YouTube. These have historically been the realm of Uber-Nerds (not the rideshare service). Nowadays, these talks have spread out to a number of different topics that range from tech to motivational speeches. Really worth checking out, if you want to stay ahead of the “next big thing”.

However, this is where many people get stuck. They have made a commitment to reaching a goal. The amount of time, money, and effort required to reach that goal may no longer be worth it. This is a very emotional issue for many people. Nobody wants to feel they have just been spending the last year and a half spinning their wheels. Worse, the goal they were trying to reach has just been eclipsed by new technology. “Now, what do I do?” you may ask. I’m not sure, but there’s probably a TED Talk for that.

People are another issue altogether. Without turning this into a therapy session, we all have friends in our lives we may be better off without. The big question to ask is, “If I just met this person today, would we become friends?” That’s a very important question. Because if the answer is “no”, you have to give some serious thought to what you are getting out of that relationship. Again, emotion plays a huge part in this decision.

I suggest you sit down and make a list of all of your sunken costs: Financial, Career, and Personal. Then do a Pros and Cons evaluation whether you should keep the item (or person), or let it (or them) go. If you’re honest, this list can grow pretty long. As I wrote in my article on Procrastination, it’s easier to ignore the sunken costs, than taking a hard look and determining whether you really need it!

I hope this article has helped illustrate what sunken costs are. How to really look at them with blinders off, and make an honest evaluation of them.

If you like what you’re reading on TBPC, please leave a comment and share the website with your friends. Also, if you would like to be notified of new posts to this blog, please click on the “Follow” button in the lower right corner. Until next week, may your parachute fully deploy, and may you have a soft landing!

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