Sarah and I have a clothes dryer that — no joke — hates us. It destroys our stuff. It doesn’t do what we ask it to. And when it does actually do what we want, it complains, loudly. Seriously: It’s like a giant metal toddler.
The thing is, we should have replaced this thing months ago. Dryers aren’t cheap, but if we’d made a plan, we could have bitten the bullet long ago and replaced it. But we still have this awful, hulking, beast of an appliance throwing tantrums in the laundry closet. And we’ve invested money into it that we could have put towards its replacement.
Why? Because of a trap in our thinking we’ve fallen into, repeatedly. There’s a good chance you’ve fallen into this thinking trap, too, and you’re spending more money than you should. It’s called “the sunk cost fallacy.” Today we’re going to see how we can outsmart ourselves in order to beat the trap and to save money.
It Had Such Potential
When we moved into our house, some friends gave us an old (but working) dryer they had just replaced. Since we’d just bought a house, money was tight, so we gratefully accepted their hand-me-down.
It worked decently for a while, but before long, clothes took longer and longer to dry. And it started screeching whenever it ran. And then the axle that spun the dryer shattered.
Time to pack it in, right? Good hustle, dryer? Nope.
I am a man, and dumb. “I can fix it!” So, armed with a wrench and a Google, I took the dryer apart. Hours later, Iʼd found the broken piece and ordered a replacement part online.
The part came a few days later and I fixed the dryer! And it required a wrench!
Comic from Wondermark
Well, in fixing it, I broke something else. A wire, I think. So I had to take the whole thing back apart and fix it again. The free dryer had now cost us a chunk of money, a week of laundry piling up, many hours of my time tinkering with it, and a few fights with Sarah.
But it was working again, so that’s it, right? It’s all fixed and we have a good-as-new dryer? Nope. Fast-forward to now. It’s a year later, and the dryer isn’t working at all. For the last six months, with each use, one article of clothing has gotten chewed up. And a week ago, it stopped getting our clothes dry at all, even with hours of tumbling.
Why I Haven’t Replaced It Yet
It seems obvious that we should replace the dryer, right? Every time we thought about replacing it, though, Iʼve wrestled with the fact that Iʼve spent so much time (and money) working on it. Shouldnʼt I “honor” that investment by making it work?
That line of thinking is a trap. Itʼs something economists call “the sunk cost fallacy.” Basically, humans are really good at saying “I’ve already spent money on This Thing, so I should keep spending money to fix it, rather than pay money to replace it.” We figure, “well … we already made that investment, so we should make good on that and invest some more in this thing.
Here’s another example. Let’s say that, on a whim a few weeks back, you bought a coupon to a local restaurant, and the expiration date is coming up this weekend. You’ve since looked at your budget and can see that you really don’t have the $40 you’d need for a babysitter or the evening (and for the sake of argument, hiring a babysitter’s the only option). As sad as it feels to not take advantage of the money you’d spent on the coupons, spending money you don’t have on the babysitter is an example of falling into the sunk-cost trap.
Or let’s say you’ve taken your old car in for a check-up, and the mechanic calls you up and says it’ll cost more to fix the car than it would to replace it with another vehicle. You protest: “But we just put new tires on it last month, and that was $300!” Again, as sad as it is to have spent that money before, it’s already spent.
In the case of our dryer, even though I’d already spent money on replacement parts, and though I’d spent time working on fixing it, and even though my pride as a tinkering fix-it-up kind of guy was on the line, the most rational thing for us to do would be to start looking for a replacement dryer.
How to Escape the Trap
Itʼs a real temptation to “honor” the money and time youʼve already poured into something. It can be hard to disregard it.
What you should do is say “what’s our long-term plan, and from where we are, right now, regardless of what weʼve spent so far, what will it take to get to where we want to be?”
Hereʼs how to focus on your money’s future, and not on your money’s past.
Forget about what you’ve already spent (or haven’t spent)
Whether it’s for a broken dryer, or a minivan with new tires, or a coupon for a local restaurant, remind yourself that “what we’ve already spent, we’ve already spent.”
Photo by Alan Cleaver
Value things for what they can do for you in the future, and not for what they’ve done for you in the past.
One more example. You see a pitcher with a built-in water filter on sale, and you buy it. Then, it turns out that the replacement filters are really expensive. And the only way to get cheaper filters that work is to start over with a brand new pitcher. It might make sense to buy the new pitcher, even though you already spent money on the earlier one.
Again, the point is to say: from where weʼre standing right now, whatʼs the best way forward? And sometimes that might mean buying something you already own. (Maybe you can sell the other pitcher at a yard sale or online to recoup some of the cost.)
Sometimes, but not always, fixing your stuff is better than buying replacements. Find the line.
You might think I’m suggesting that anytime something breaks, you should throw it away and get a new one. Not at all. Usually, fixing something that’s broken is far better than replacing it. But thatʼs not always the case. The trick is simply recognizing that your investment so far shouldn’t direct your investment from here on out.
Logical fallacies are tricky things, mainly because they seem — on their surface — to make sense. Often, we think weʼre making a rational decision about money, but weʼre actually making an emotional decision about money. Sometimes we need to take a step back, to look at the whole picture, and to then decide what makes the most sense.
And sometimes, even if we’ve spent money, time, and energy “fixing” the problem, we’re better off in the long run by replacing the dryer completely.
Have you ever fallen for the sunk cost fallacy? What are things that you keep plowing money (or time) into, even when it might be better to move on?