There’s a saying that “No one ever went broke by saving money.”
It’s a really good reminder about the prudent practice of anticipating the odds that your future self will have needs that you don’t know about yet today.
Now this episode isn’t about finances, but it’s going to explore how our brains respond to investing and the value that we assign to the actions we have already taken and investments we’ve already made.
I’ll give you an example. As an entrepreneur, I need to pay estimated taxes every few months. That means that rather than having an employer take out taxes on my behalf, I collect payment from clients then need to estimate how much I should pay each quarter based on a full year of money I have not yet made.
The exercise here is that you get and then have to estimate what you will give. And as most of us have experienced, it’s really hard to have something we want right in front of us and then give it away.
Any previous time, money, or effort that has already been expended is known in financial principles as a Sunk Cost. It is an investment that has already occurred and cannot be recouped.
The Bottom Line on Top of this episode is that we all have a ledger of sunk costs in our mind and many of those are directly influencing the investments we’re making today. You don’t have to give something today in places where you already gave. Instead, look to see what return you got, if any, on those previous investments before you decide to spend further, give more, or keep something around.
Let’s look beyond money and toward the investments we make in people, time, loyalty, and decisions. Based on the who, what, and how long, we tend to assign current value to previous expenditures in those areas. Perhaps you can even hear the mental receipts in the words that are being used-like. We’ve been friends since high school. I’ve been working for this promotion for years. We’ve spent so much time renovating our home. This item has been in our family for decades.
It’s important to value what we have; just be aware of what you have that continues to ask for more or where you keep giving more without even being asked.
There are certain life milestones where it’s important to officially release something we’ve had in order to make room for what’s ahead. Episode 12 highlighted the importance of personal graduation ceremonies. This is about a practice of honoring and appreciating the places you’ve been and the people with whom you’ve shared the journey and still moving forward.
The same is true of sunk costs. For these, we feel the weight of the previous investments. That feeling is often a clue that we are carrying a recurring cost and that it is outweighing the current value. Another clue is when we find ourselves overexplaining what we are carrying, or we allow others to have a vote in what is kept, or we keep getting emotional invoices.
An investment isn’t a debt. And it shouldn’t feel like one.
I was talking to a friend earlier and she was explaining how she has conflicting feelings now that she has officially resigned from her company. Wanting to be fair, she offered a long notice period so she could help with the transition. But now that people are aware she’s leaving, it seems that some are asking for more – time, training, advice, etc. Others are divesting from her, showing that she’s no longer valued or needed.
Listening to her reminded me of my own exit years ago from a company I had been with for nearly a decade. I had similar struggles as I processed my desire to do something new with my loyalty to the people and the work I had loved for so long.
My mentor at the time explained that my history and tenure were a sunk cost. Sure, I could acknowledge and process my own feelings about leaving while not giving away more time trying to make my decision easier on everyone else. “Remember,” my mentor said. “A job can’t love you back.” Neither can a sunk cost.
I’ve revisited that wisdom many times since, when I start to mix feelings with facts.
Let’s switch now and talk about the positive ways to use sunk costs in your here and now.
Episode 40 looked at the lagging indicators in our current life and how many are a direct result of previous decisions and behaviors. With this in mind, what is an investment you can make today that will yield returns for you tomorrow, or soon thereafter?
It could be as simple as going to bed on time tonight to give yourself a mental kickstart tomorrow. Or you could make a better meal choice, saying no to something that is time you don’t want to invest, and so on.
Tapping into the sunk cost model, ask what you can sink today that will amplify your tomorrows.
If you find that you are often struggling with procrastination or perfectionism (or both!), applying the sunk cost principle can help you tackle barriers to progress.
I was recently leading a productivity class with a group of leaders at a very large company. These were the people people, the team that always pitched in and got things done for customers and coworkers. I issued a challenge for them to think of one thing – just one – that had been bugging them because they hadn’t been able to get it done for themselves. Everyone quickly had something to write down.
As soon as they did, I put a countdown clock up in the room for 10 minutes.
“Go do that thing,” I said.
“Wait a minute” everybody started to object, they wanted more context and answers. I simply hit start on the clock and the group scrambled as the seconds started ticking down. Then after about a minute, the room calmed. People quietly started doing instead of thinking & talking & debating. There was no decision to make, only action to take.
As the minutes went by, people would finish and then look up at me. They were done. The clock was still running. They would look at it, they would look at me. A few people took the full 10 minutes, but most didn’t. Not all tasks can be done in only 10 minutes, but they can certainly be started-it’s that momentum.
One woman said she could finally take a post-it note off her computer that she put there 7 months earlier. “It’s been bugging me every time I see it,” she said.
That’s another fallacy we keep throwing mental investments into. That nagging disappointment in our brains of things not done, investments not made. Those carry a cost, too.
So for today, pay attention to where you’re investing, where you’re still paying interest on things that are already paid, and where you’re avoiding an investment but paying for it mentally.
As a reminder, this isn’t about the math of money. It’s about the value you allot to yourself, to others, and sometimes to things that can’t love you back.
The efforts you make to balance your financial, mental, and time accounts today can yield great returns. In fact, your future self is counting on it.
Invest wisely, enjoy those dividends, and be sure to take good care.
