My Money, My Choices
Gail Vaz-Oxlade is a personal finance writer, television host and radio broadcaster. Every Wednesday, she arms Metro readers with tips to keep spending in check.
Time to stop spending and start thinking: Vaz-Oxlade
Don’t keep doing what you’ve always done just because you’ve gotten used to spending the money.
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Ever heard of a “sunk cost fallacy”?
In economics, a sunk cost is any cost that has already been paid and cannot be recovered. In life, it’s the expense that we’ve already reconciled ourselves to covering so we’ve stopped thinking about spending the money.
It comes from the fact that we perceive our various pots of money as having different values, and we react to them in different ways.
And once we’re used to spending, stopping or changing directions hurts more than sticking with the original plan. Witness all the people who keep paying for a gym membership they never use. Or the folks who will not get rid of stuff cluttering up their homes because they spent good money on it.
You know — the cable package and digital recorder that you pay for every month without a second thought. That’s you thinking about the cable bill as “spent” money. With one call you could cut your costs substantially and slam $50 or more a month into your emergency fund, against your mortgage or into your retirement savings.
You see the money you blow on your smartphone as sunk money. By the time you get the bill you’ve already spent the money. Never mind that a call to pick a better plan that gives you more for less money, or a switch to a pay-as-you-go plan, could save you hundreds of dollars a year.
Switching banks is too much trouble. Golly, just think of all the auto-debits you’d have to change. Switching where you shop for your groceries takes planning, but that’s too much work even though you could reduce your monthly costs significantly. Switching from buying new to buying used is just plain yucky. (Oh, get over it!)
Ready to free yourself from bad decision-making based on sunk cost fallacy? Here’s the good news: You’re already on your way. Just being aware of how you’re thinking can help you make better decisions moving forward.
Struggling to find the extra money to make a dent in your debt? Concerned that you’re not saving enough for the future? Wish you had an emergency fund so you could sleep at night? It’s time to go over your expenses with a paring knife and a keen eye on your sunk costs.
Today, pick an expense you’ve been paying without even thinking about it — be it your gym membership, your book-of-the-month-club subscription, your car or home insurance — and look for ways to slim down your spending.
Don’t keep doing what you’ve always done just because you’ve gotten used to spending the money. Becoming aware about where the money is going, deciding to spend on purpose instead of by rote, is the first step to putting your money to best use.
No one is asking you to give up all the good stuff. It’s about becoming conscious about how you’re using your money. Today’s pleasure must balance with your future peace of mind.