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.