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Minimalism & Sunk Costs

“But I paid $1000 for that!”

This is the sound of frustration, as yet another consumer (we’ll call him Joe) learns a very hard, yet very valuable lesson.  Let’s look at how he got here.

An Illustration

Joe spent $1000 on a piece of exercise equipment that takes up an entire room of his house, only to discover six months later that he can’t stand using it.

He doesn’t just want to throw it away, so he tosses an ad in the paper (and on Craigslist).  ”Mint condition AbDestroyer 28000 Multi-Gym, paid $1000 new, will sacrifice for $800.”

The ad generates no calls for two weeks.  Apparently nobody in Joe’s area is willing to pay $800 for a gently-used AbDestroyer 28000.

“Maybe $800 is a bit too high”, Joe thinks.  He calls the paper and re-posts the Craigslist ad, this time for $700.  ”That’s $100 off”, he reasons, “it’ll sell for sure!”

A week after revising the ad, Joe gets his first call – from a guy who lives across town.  The guy drives over, takes a look at the machine, and tells Joe he’ll offer $500 for it.  He’s prepared to pay cash, and take it home right now.

Joe flips out.  ”$500?  $500?!?!  This is a $1000 machine!”

Joe boots the guy out, and watches in satisfaction as he drives off.  ”He’s not going to take advantage of me!”

Whoah, What Just Happened?

I’ve seen this sort of thing played out more times than I can count.  On some level, it makes sense – Joe feels like the other person isn’t making a fair offer.

After all, he did pay $1000 for this just a few months back, right?  Yes he did, but….

The  amount of money paid for something has no bearing on its value.

None.  Zip.  Nada.

The fact is, that item may not even have been worth $1000 at the time Joe purchased it, let alone now!  There are a number of potential reasons for this, but none of them matter.

It doesn’t matter why it won’t sell, and Joe doesn’t even have to know what the reason is.

The $1000 spent is “sunk cost”. He handed over $1000 in exchange for this machine.  The $1000 is gone,  bye-bye, hasta la vista.

What Really Matters

This machine is taking up an entire room of his home, and Joe wants it gone – but his perception of its value is causing him to waste a lot of additional resources on it.

Think about this.

Joe pays rent, a mortgage, or at the very least property taxes.  He’s paying for 120 square feet of space (or more!) that’s dedicated exclusively to a piece of equipment that he never uses.

Because of his efforts to sell it, Joe has to spend time cleaning, dusting, or otherwise maintaining it once per week.  It’s costing him time.

He’s even paying to run ads in his local newspaper to try to get rid of it, so it’s costing him money.

And possibly worst of all?  His brain is fixated on this thing.  Every time he looks at it, he wishes it was gone.  Every time he has to clean it, he finds himself wondering why nobody is buying it.

He probably even has other plans for what he’ll do with this room once the machine sells.

This exercise machine is actively obstructing Joe’s life.

Joe would probably be ahead of the game if he just dismantled the thing and hauled it out to the trash – but he’s got a guy willing to pay him $500 to haul it off!  What a deal!

And the only reason he doesn’t jump on that deal is because he’s focused on the past, not the future.

Bringing It All Home

Of course this isn’t just about Joe, and it’s not just about the AbDestroyer 28000.

You can have sunk cost in physical items, investments, relationships, jobs, and pretty much any area of life.

The key is in realizing that what you’ve put in is gone.  You can’t get it back.  The only question left is, “is it worth chasing that initial investment with more time, money, and energy in the future?”

Sometimes it is, sometimes it isn’t – but you need to decide with an eye toward the future – not the past.

What about you?  Have you ever found yourself pouring resources into something long after you should have stopped?  Have you ever had to put the past behind you, and move on?

Tell me about it in the comments!

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32 Responses - Add Your Input!

Posted April 14, 2011 at 4:24 am | Permalink

Yeah I know that feeling.
So if I understand right Joe should be happy that he gets 500$ for creating for space in his room, selling this machine directly to that guy who will drive it away immiedately and feeling free (no stress, etc.) ?

For me that’s more than enough money!

    Robert
    Posted April 14, 2011 at 4:34 am | Permalink

    That’s my contention, yes. The idea is that focusing on the perceived value of the machine is causing Joe to continuously throw away more time, money, and energy – all the while missing the very real value of being rid of the thing and able to get on with his life.

    Thanks for commenting Mike!

Posted April 14, 2011 at 10:15 am | Permalink

There’s great value in getting rid of something. Once you buy something, it has a negative value unless you give it value by using it or find a way to gain financial value by selling it. An item that is just sitting around uses your resources to clean, move, power, avoid or think about. An item you no longer have is no longer a problem. And that has great value!
Gip
Gip/So Much More… recently posted..The Silliness of Paying For Things That Are Free

    Robert
    Posted April 15, 2011 at 8:55 am | Permalink

    That’s the interesting thing about stuff. Things you buy can either go up or down in value *immediately* upon purchase.

    For example, a filing cabinet can almost instantly be worth far more than the $100 or so you pay for it – if you use it to get your paperwork under control.

    But if it just sits there….yeah, negative value all the way. :D

    Thanks for commenting Gip!

Posted April 14, 2011 at 11:05 am | Permalink

i struggle with this a lot too. i did it with my wedding dress which sat in my basement for years because it was worth $1000, i paid $700 for it brand new and wanted to get $500 for it. I finally ended up selling it 2 years ago for $250. And you know what? I’m just glad it’s gone!
marianney | A Life Set Free recently posted..People Making a Difference Series – StandUp for Kids

    Robert
    Posted April 15, 2011 at 8:52 am | Permalink

    *Exactly* – especially with something like a wedding dress. Unless you have some other use for it, it’s literally just sitting around collecting dust.

    Thanks for commenting Marianne!

Posted April 14, 2011 at 1:49 pm | Permalink

When we minimalized our belongings before our big move we did really well on our vehicles breaking even, one we’d put better tires on we netted $100 over our original purchase price, that was pretty cool, we’d used it for free other than insurance! As we moved on to furniture and appliances we had to learn Joe’s lesson quick and emotionally let go of sunk costs so we could release things and just move on. In the end really glad we moved on!!
Gena recently posted..A Go Slow Blog Aloha

    Robert
    Posted April 15, 2011 at 8:58 am | Permalink

    A friend of mine’s brother used to buy cheap used vehicles ($500 to $1000), drive them for a year or two, and then donate them to a charitable organization that fixed up the cars and sold them. He usually got his purchase price back in a tax deduction.

    I know what you mean about the furniture and appliances – it drops off quick!

    Thanks for commenting Gena!

Posted April 14, 2011 at 7:38 pm | Permalink

This is awesome and so true Robert. We just went through something similar with a curio cabinet we sold on Craig’s List. For two weeks we kept lowering the price of that cabinet — from $175 down to $75 — until finally we received an offer for $50. We jumped at the offer. The value of having someone come and get that thing out of our living room was well worth the loss in *perceived* value.

After all, anything we own is only worth what someone else is willing to pay for it. ;)
Jenny @ exconsumer recently posted..What Will You Take When You Leave

Posted April 15, 2011 at 3:43 am | Permalink

[...] – Untitled Minimalism: Minimalism and Sunk Costs – Robert wrote a great post about the (false) perceived value of “stuff” we own [...]

Posted April 15, 2011 at 7:18 am | Permalink

This is why when I re-sell items, I start at 50% of the original price, but am willing to take 30%.

:)

The pain of having to keep something so bulky and heavy that I’d never use any longer is worse!
The Everyday Minimalist recently posted..Thinking of birds…

Posted April 15, 2011 at 7:25 am | Permalink

What an insightful piece. I have what seems like a third of my attic right now piled with stuff I want to divest myself of. I keep having the debate: Do I just put it all in the back of the car and donate it to Goodwill, or do I go to the trouble of sorting it, figuring out what someone else might want to buy, and then post it on ebay and craigslist? How long do I wait before I decide that it’s not going to sell (you see, I’m already pretty sure it won’t but at least, I tell myself, I tried)?

In my heart, I’ve just wanted it gone, baby, gone. This article validates that feeling, and helps me quiet the little voice telling me, “but think of all the money that was spent on it.” Thanks Robert!

Robert
Posted April 15, 2011 at 9:01 am | Permalink

I can definitely understand that feeling. Sometimes it’s definitely cathartic to just get rid of the stuff, and be glad that it’s out of your life!

Glad I could help quiet the little voice. :D

Thanks for commenting Jill!

Posted April 15, 2011 at 12:34 pm | Permalink

This sounds like my house. As in literally, except in my case it’s a rowing machine :) I live with my parents though, and my mum refuses to get rid of the thing even if we were to sell it. We paid good money for it, so we’re going to keep it, even if it just takes up space.

Not in my house!

Michael
Michael Ashcroft recently posted..Why do we resist sustainability

    Robert
    Posted April 15, 2011 at 6:09 pm | Permalink

    Michael, I picked exercise equipment for my example for a reason – lots of people can relate to it! It’s the classic piece of stuff that isn’t getting used but *is* occupying a ton of space.

    Hopefully someday you’ll have a place of your own *without* a rowing machine. :D

    Thanks for commenting Michael!

      Posted April 17, 2011 at 11:36 am | Permalink

      Hopefully, Robert; hopefully!

      My life plan currently looks like this: get job -> get place to live -> ?? -> Profit :)

        Robert
        Posted April 17, 2011 at 1:25 pm | Permalink

        Filling in the ??s is always the trick, isn’t it? :D

Posted April 16, 2011 at 9:30 pm | Permalink

Oh my God Robert! You said it! “The amount of money paid for something has no bearing on its value.”. Why is it that people think that the more they spend equates to the more they love. Well said Robert! Well said!
jenny smythe recently posted..Why I write LESS

    Robert
    Posted April 17, 2011 at 1:23 pm | Permalink

    That, and the fact that people can’t get beyond the fact that the item itself doesn’t equal the love. Of course, that goes back to the theme of the guest post I wrote for you last month. :D

    Thanks for the encouragement Jenny!

Jen
Posted April 17, 2011 at 7:28 am | Permalink

This is so true, I have a basement full of kids toys that I need to get rid of. I am finding that even things I spent $50 for and look practically new I can barely GIVE away! I have decided to stop buying them any more large plastic objects.

    Robert
    Posted April 17, 2011 at 1:21 pm | Permalink

    Toys are rough, because the ones that really generate “screaming kid excitement” seem to also go out of style – and then they’re not worth much (until 20 years later, apparently, when they may all of a sudden be “collectible” – assuming you kept the box, and never actually played with them).

    Best of luck in your basement decluttering efforts, and I definitely agree – preventing the future intrusion of large plastic objects is probably a good idea!

    Thanks for commenting Jen!

Posted June 19, 2011 at 6:47 pm | Permalink

[...] cosmetics person either.)  I was reminded of a recent post by Robert Wall in which he talked about sunk costs and wondered if this toiletry bag fell into that category.  It cost the most, so I think I should [...]

Posted August 3, 2011 at 10:32 pm | Permalink

I worked for somebody once who would rather destroy and discard an item than sell it for less than he felt it was worth. This was in an electronics repair shop, where we also sold used gear and unclaimed repaired units. Same principle, though.
Mike | Homeless On Wheels recently posted..Does News Matter Anymore?

    Robert
    Posted August 3, 2011 at 10:40 pm | Permalink

    Yeah, I have relatives that can be the same way sometimes. I’ve never understood that mentality.

    It’s one thing to be holding out for a better offer. There’s even something to be said for (in the case of metal and recyclable materials) something being worth more as scrap than somebody is offering.

    But if you’re destroying something rather than taking a lower-than-appropriate offer, under the mistaken concept that you’re teaching somebody a lesson, the only lesson being taught is the one you should learn yourself.

    Your comments are always appreciated Mike!

Heidi
Posted November 28, 2011 at 3:38 am | Permalink

Oh my gosh. This is me. I have a small travel trailer that I bought about 2 years ago for my son to use as an apartment out back. After 1 week he decided it was not going to work out and he began staying in the house again…2 years later I can’t get rid of the thing. I have advertised it 4 times on craigslist, which is where I bought it from and for the same selling price, and it won’t sell. I’ve only had 1 person come look at it. I’ve even dropped the price $500. No takers. I have been so sad about this.. the wasted money purchasing it, renewing the tags and the time cleaning it and moving it from the front to the back to “show it” (ya, right. o.0) And it was damaged while moving it out front, sigh. I think about the stupid trailer every.day. I guess it’s time to cut the price again to see if I can get it out of here…then maybe we should talk about the Total Gym that is taking up half of my bedroom. Haven’t used that in about 2 years either, sigh.

    Robert
    Posted November 28, 2011 at 4:26 am | Permalink

    It’s not just you, I think this post describes almost everybody at some point in their lives. That sucks about the travel trailer. Any way you could use it for taking a camping trip or something? Maybe you could get some use out of it if nobody else wants to buy it. :)

    Depending on the model, sometimes those Total Gym things can go for a couple hundred bucks on Craigslist. The early ones you’re lucky to be able to give away, but the newer ones can bring some money. Usually there’s somebody who wants one and doesn’t want to pay the infomercial prices.

    Maybe it would work best to photo up the travel trailer, put it on Craigslist, and say “make me an offer” rather than posting a particular price. If there’s something else you’d rather have you could also mention that you might accept a full or partial trade for ________. That way you can get an idea of what people are willing to give for it. And the plus side of the buyer making the offer is that you’re the one with the “take it or leave it” decision. :D

    Just a couple of thoughts. Best of luck getting rid of the stuff, and thanks for commenting!

      Heidi
      Posted December 8, 2011 at 12:47 am | Permalink

      A trade is a great idea. I have a hunter who is supposed to come look at it this week…

        Heidi
        Posted December 13, 2011 at 12:29 am | Permalink

        I just wanted to check back in and post my progress…I have sold the trailer! Whoo hoo! I would not have done this if I hadn’t read this post, so *thank you*. I know I would have been stubborn and held out for a better selling price in order to minimize my loss…ya, right. It’s gone and I couldn’t be happier…well unless I hadn’t bought it in the first place but since I don’t have a time machine I’ll settle for a peaceful nights sleep and an empty space on my lot where the trailer used to sit.

        Robert
        Posted December 13, 2011 at 9:37 am | Permalink

        Woohoo! Glad you got it all worked out. Sometimes a large, empty space is a good thing – and a peaceful sleep is *definitely* a good thing! So now all you need is something to put in the empty space…..

        Just kidding on that last bit, of course. :)

        Thanks for the encouragement, Heidi. It’s nice to know this blog is helping somebody.

Desiree Patterson
Posted December 13, 2011 at 5:24 pm | Permalink

But if you’re destroying something rather than taking a lower-than-appropriate offer, under the mistaken concept that you’re teaching somebody a lesson, the only lesson being taught is the one you should learn yourself. I am finding that even things I spent $50 for and look practically new I can barely GIVE away!
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Posted May 13, 2013 at 7:21 pm | Permalink

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