In business, a sunk cost is money that you’ve already spent that cannot be recovered. Sunk costs are gone, so they should not influence your current thinking and future decision-making. For example, a company shouldn’t continue a failing project just because they’ve already spent a lot of money on it. That money is gone. They should only consider the future costs and benefits. That’s what they should do, but it can be hard to forgot about all the money that’s already been spent.
I remind myself of the concept of sunk costs when thinking about the value of things in my life. For example, when I’m cleaning out my closet (which, to be honest, I should do more often) I try not to justify keeping something just because it may have been expensive. If I don’t wear it I don’t need it.
I also use the sunk cost idea to avoid regrets. If I spend too much money on something I try to think of how I can make better choices in the future, but unless it is something I can return, I can’t undo what I’ve already spent. Still, it’s hard not to kick myself when I feel I’ve wasted money.
I felt this way after my son’s birthday party.
We were expecting nine kids including my two, and I found a great party package that would let me avoid the hassle of having a party at my house. Wonderful! Sure, the package had a ten guest minimum, but I was happy to eat a kid’s ice cream sundae and take home one extra treat bag. It still seemed like a good deal.
Then, the week before the party one kid’s RSVP changed from yes to no. That would still mean eight kids. Not a problem. We could give away the two extra treat bags, and now my husband could have some ice cream too.
The day of the party we arrived half an hour early to set up the room. I set the table for our expected guests. All eight of them.
The first person to arrive was supposed to come with his brother, but their dad apologized saying that the brother was sick. That happens. Okay. We’ll send home his treat bag for when he’s feeling better.
Two other guests came, then the arrivals stopped. Two no-shows. Our ten guest minimum party only had five guests.
I tried to remind myself that the price of the party was a sunk cost. I couldn’t get that money back. I should focus on whether the guests who did attend (and particularly my birthday boy) had a good time, which they did.
Still, I couldn’t help thinking that I would have done things much differently (and a lot more cheaply) had I known there would only be five kids. I probably would have just had the party at my house.
Then again, even five kids can make a huge mess. I’d have deal with that instead of having the luxury of collapsing from post-party exhaustion without having to worry about additional chores. Hmm. Maybe sunk costs aren’t so bad after all.
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