Not every dollar spent is a poor decision. Not every purchase is a bad one. Not every expense is wasted.
In Accounting terms, there is a difference between a sunk cost and an investment. A sunk cost is money wasted, never to be recovered. But an investment is very different. An investment is money spent for the purpose of long-term (or short-term) gain. And while not every investment pays off in the long-run, some rewards are worth the risk.
I have found this to be a helpful distinction as I evaluate my spending and my purchases. Some purchases are worth the expense because they result in short or long-term gain—and I am not just talking about financial returns.
For example, many people will encourage you to invest in a quality bed and mattress. Healthy sleep is important because it provides the foundation and energy for how we spend our days. This seems like wise advice. Buying a quality bed is an investment into my life.
Additionally, I would argue that healthy food, quality running shoes, and opportunities to learn are also smart investments. They may cost a little bit more, but they improve our quality of life providing valuable returns. Some might include travel on the list—I tend to agree so long as experiencing and learning from new cultures accompanies it.
As might be expected, these investments vary from person to person. For me, as a writer, a working computer might be considered an investment. But the tools of a woodworker would be very different—even more a chef or a student or an airline pilot.
Unfortunately, many of the things we are sold these days are not investments. They are merely wasteful expenses—money that can never be recouped. They become a sunk cost as soon as we leave the store.
We are constantly told to upgrade our home size, our transportation, our appearance, or our means of entertainment. We are marketed unhealthy food as convenience and fast fashion as essential to success.
We are subtly convinced by a thousand different voices these purchases will improve our lives. But they rarely do. The happiness wears off almost immediately. And our only return on investment is regret.
Even worse, many of the things we purchase rob us not only of financial resources, they also steal our time and energy and focus. They redirect our attention from things that do matter and place it squarely on things that don’t.
There is another Accounting phrase called the “sunk cost trap.” Essentially, it warns against the tendency of people to irrationally follow through on an activity that is not meeting their expectations simply because of the time and/or money they have already spent on it. If a purchase made in the past is not providing its desired result, it is sunk. And other than the lessons learned, it should not be factored into future investments.
If the possessions you have accumulated over the years have not brought the happiness and fulfillment you desired, it is time to make a change. (tweet that)
Owning less provides more money, more energy, more time, and more opportunity to pursue our greatest passions. It allows us to redirect our finite resources away from sunk costs and place them into sound investments—investments that improve not only our own lives, but the lives of everyone around us.
Thank you for this post. I am currently in the process of going through each room in my apartment and getting rid of “stuff” that I don’t need. But looking at it from this perspective of being an investment in my life will allow me to most likely get rid of more than I was originally. This helps me to stay focused on living more simple and the importance of minimizing.
“We are subtly convinced by a thousand different voices these purchases will improve our lives… And our only return on investment is regret.”
Well said! I’ve even started vicariously feeling this regret when I give a family member a birthday gift and I later realize that it may never actually get used.
What I really need to do is start giving gifts that are actually investments (from which the recipient will actually collect dividends)…
For sure.
My wife and tour the USA full time, and since we don’t have much, the things we do have are quality. Clothes that are made well, comfortable, packable and versatile aren’t cheap but are well worth the expense. Electric longboards and folding bikes aren’t cheap either, but absolutely enhance our experience
We were minimalists even before we hit the road. If I ever made a big purchase(hobby stuff or similar) we bought nice and with the mental understanding that if we bought something, we paid cash and could say goodbye to that cash forever right then. IE – if it ever came time to part ways with that object, we could walk away from it, without having to make any money on it. That’s not to say we wouldn’t (especially if we had the time or inclination) but we left ourselves that out if we ever decided to pack up and hit the road and didn’t want to mess around with the hassle of selling. When we did decide to go, we ended up giving away most of our things to people we felt could use it, even when most of those things could have brought us a nice chunk of change. That’s one of those beauties of simplicity, money loses it’s meaning and power :)
Hi Joshua,
Am here again. Am becoming a kinda sticky to your blog–it worths it. The knowledge I’ve accumulated so far is essentially good.
Like you said, its of no value spending more money on stuffs that brings no addition to our lives. Spending $$$ dollars on alcohol liquidates you; leaves you in the same financial tumor forever.
We should spend less to own more! Thanks once more.