WHAT ARE SUNK COSTS? | Financially Fabulous - YouTube

Welcome to LimorTV the place to be to learn about money and get inspired to

take small steps to improve your finances. While I'm not a financial

planner, I'll show you what I've learned. In today's episode I'm going to be

giving you my thoughts on sunk costs. Come on, this will be captivating

While sunk costs are often thought of as a business term, they apply very well to your

personal finances. Sunk costs is when you spend money, time or effort on something and

you can't get it back no matter what you do. It has been argued and I agree that

you should not make a decision in the present or the future

taking into consideration sunk costs. Let me give you an example, I was on my way to the

airport I was three-quarters of the way there, when I got a text message saying

that my flight was cancelled that there were no other flights going out that day.

What was I to do? Should I have gone all the way to the airport just because I

had already spent the cab fare for three quarters of the way there? Of course not

that's ridiculous! but it's easy to rationalize sunk costs in that example.

In other instances it's less obvious and it's harder to rationalize not taking

the sunk costs into consideration.

Let me give you another example. I was recently going to be playing in a golf

tournament. I signed up in advance and I paid for it. Now I'm not an avid golfer,

but I do like to get out there every so often take a quick look. Anyway I paid

in advance to play in this tournament but as it was getting closer to the day I

was recognizing that things were not starting to look my way. Things at work

we're getting really crazy and I knew that it would be less feasible for me to

be able to take the time off work to go and play. I had some transportation

hiccups I don't know if you know but I don't own a car I sold it a few years

ago which is the best financial decision I ever made.

I'll tell you about that another time but the transportation that I had

organized wasn't quite working out.

Also the weather forecast was expecting some thunderstorms. It was now the day

before the event I did know what to do and I was feeling really guilty about

the money that I had already spent. But then I thought and I thought of as a

sunk cost I knew I couldn't get a refund and couldn't get the money back no

matter what I did. So I thought about what would be the best decision in the

present based on the information that I had decided not to play and

had a clear mind about it. Now there's some instances where taking into

consideration the sunk costs can actually cost you a lot more money going forward.

Let me give you another example. One of my good friends has season tickets to the

baseball game. Her dad bought them for her because on occasion they like to go

together how she doesn't even love baseball all that much but her dad pay

for the ticket so she feels guilty not to go. So begrudgingly, in most instances

she actually goes to the game. But, when she goes to the game she also pays for

overpriced drinks and overpriced snacks and overall it ends up being a really

expensive event just because she felt guilty about money that was already

spent. And then when she comes home she gives me a call and let me know that she

feels even more guilty for the extra money that she spent, rather than just

for the cost that her dad paid for the tickets. Sunk costs happen all the time on

individual payments or recurring payments. You guys know me I don't like

to be wasteful with money but if the money has already been spent

I recommend that you not take it into consideration when making your present

decision. That brings me to today's tweetable. Think rationally! if you've

already spent the money and it's gone make the best decision for the present

Here's my challenge to you now that you understand what sunk costs are and how

they work.

I want you to think about a time where you actually had to make a decision and

maybe you took some costs into consideration. Now that you truly

understand what a sunk cost is, would you make the same decision? Leave a

comment below and let me know what you would do differently this time around.

Did you like this video? Did you learn something? Subscribed to my channel and

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to change who you are or how you live your life. I just have strategies to make

you even more financially fabulous. And you don't have to change what you're

doing all that much.

Be proud that you're learning and taking small steps to improve your

finances. It will give you confidence and peace of mind. Thank you so much for

watching a catch you next time on your TV