Last Updated on Apr 8, 2020 by James W
Have you ever wondered how come that, by the end of the month, all of your money are gone? Would you like to be able to keep them at your own hands, yet you do not know what path to choose? Well, believe it or not, you are not the only one in this situation. Nowadays, lots of us are trying to deal with money in the best way they can, yet little of them manage to do so. When it comes to finances, it seems as if we have entered in a twilight zone, when some have lots whereas others have little – or nothing at all. These being said, in case you are looking forward to knowing more concerning the subject, make sure to stick with us and keep an eye onto the following lines in order to see how can the sunk cost fallacy decrease your budget!
- What is the Sunk Cost Fallacy?
According to economic theories, a sunk cost is considered as a payment (or investment) that has been done and cannot be taken back. For instance, when a business invests up to 9 million dollars in a business, investing another 1 million would be a sunk cost (the 9 million are alread a sunk cost, so the 1 million is just an additional one). Departing with this idea in our minds, there is no reason why we should not talk about the sunk cost fallacy – since we tend to experiment it each day, as time goes by.
- How Can the Sunk Cost Fallacy Affect Us?
The answer is extremely easy – the sunk cost fallacy is bound to be always present in your daily life. Basically, any money that you waste is some kind of sunk cost. For instance, whenever you decide not to take the change from the table, you are losing those money – so that might also be categorised as the sunk cost fallacy. The repercussions are quite hard to handle with, since you might not observe them soon. Let’s just take, for example, the fact that you tend to buy the same Starbucks over and over again, each morning. Because of this habit, you invest a good part of your money into it and voila – at the end of the month, you realise you do not have enough money to make it through the month the way you previously expected.
- Why Is It That Hard to Stop?
If you were into the sunk cost fallacy, you have probably said to yourself that due to the fact you have plenty of food, you definitely have to eat it. Well, this is bad from numerous points of view – for instance, let’s just take the fact that the sunk cost is something that happens each day, without us even be aware of it. On the other hand, eating without having a reason to do so (a real one) is something that is ought to be making harm to your body and health, as well. Basically, the sunk cost fallacy can be easily considered as a way of hurting yourself, not only financially – but also in so many other ways. From a different perspective, things can look just like that: if you managed to watch a movie for 2/3 from time total time, you might as well watch the rest of it, even though you do not like that movie too much. Another example would be going and throwing your time on something that you do not like, just because you have paid for it. It is a sunk cost, due to the fact that you have already paid for it – so you cannot take your money back; the investment has already been done.
- What Can We Do to Make Things Better?
The solution is extremely easy, if it was to think of it – you can always make yourself better, by paying more attention to your everyday life, from morning till dawn. Basically, what you need to do is to bear in mind that you can improve everything once you realise there are things that need to be improved. For instance, take the fact that you can split all of your revenues by days, and agree to spend only a certain amount each day. Once you do this on a daily basis, it becomes a habit that will guide you through your existence – which means that you will be able to pay a glance to everything that you do or spend your money upon each day, no matter what. These being said, what are you still waiting for? Have you already managed to make up your mind and choose the things that suit you best? Trust us, the sunk cost fallacy is something all of us should be aware of.
