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April 07, 2011

How to Deal With Sunk Costs & Be A Better Spender!

OK – it’s time to get psychological here, and no, there won’t be a test! We’re going to talk about the effects ‘sunk costs’ can have on your finances. A sunk cost is money that you’ve put towards something you can’t get back. Whether it’s a non-refundable purchase (sale items), a phone or a deposit on a vacation rental, it’s spent money – regardless of what you do afterwards. Sunk costs can get dangerous when you need to spend more just to get value out of what you’ve already spent. For example: You spend $200 on a set of golf clubs, and go to the driving range (another $10). You’re no good, so you get two lessons ($45 each). Let’s say you did all that and it turns out you still don’t even like golfing! That was $255 of your hard earned money! Rather than ‘waste’ the money you already spent, you hit the range some more and schedule some tee-times – continually spending cash to ‘recoup the value’ from your original spend. Do you see the problem here? If you spend $A, but need to spend $B to get enough value
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