Sunday, August 2

Sunk costs: The ultimate frugal idea

After about 15 hours of sorting beads into various baggies, I realized there was no way I was putting even half of them on eBay. Too many baggies meant too many listings.

On a whim, I wrote up a quick Craigslist ad: Beads, beads and more beads. In it, I explained that we're consolidating for a move, and I'm finally coming to grips with the fact that I never finish projects. I wasn't looking to get rich, so to come by and check out my wares.

To my surprise, I got three responses by the next day. Three more came in throughout the week. I had thought I might get one or two people interested total.

So far, I've met three women and gotten about $60 for the beads. I have about a third to a half of my collection left, which makes me a happy gal. I can put some of the remaining stuff on eBay, especially things like earring forms. Those should fetch an okay price.

I definitely felt some pangs as I sold baggie upon baggie of beads for 1/3-1/4 the normal price. As I was deciding on price, I was fine, but as they walked away -- two of the women with mounds of baggies for under $30 -- I felt a pang. Should I have tried to get more? Should I keep the beads in the hopes of using them?

Then I realized it was time to take a refresher course in sunk costs. For those of you not familiar with the term, it's exactly what it sounds like: costs sunk into items you already own. You can't consider the costs you've already paid when figuring out when to keep something. We've all experienced this from time to time. We keep shoes or shirts because we paid so much for them, we can't stand getting rid of them, whether or not we ever wear them. The fact is, we feel we ought to keep and wear them.

Emotionally, that point of view makes sense. But the money is already spent. We can't get it back (unless we resell the item for a little money) so it can't factor into our current decisions. There's the additional emotional cost, too. Every time I looked at the file box filled with bead organizers, I felt guilty. I had spent money on so many occasions, full of the best of intentions to create something cool -- perhaps even sellable. I ended up with a tangle of half-finished projects.

Similarly, every time we see that shirt with the tags still attached, guilt takes over. The next time we go to pay the bills, it really resonates. That money could have gone to debt or savings. Instead, it's now tied up in material possessions we don't use. It's just not worth it.

So true frugalites know that being prudent with money happens as much after the buy as before. You have to make sure you are going to use your purchase before you get it. Then you have to make sure you actually use it once you do. And if you don't, you have to realize that the most frugal option may be counterintuitive: Sometimes to be truly frugal, you have to get rid of something you paid good money for.

After all, if you keep enough sunk-cost items, it can affect your bottom line. When you keep too many shoes or clothes you never wear, you'll end up spending money on organizational systems you wouldn't otherwise need. Expensive furniture puts a premium on space in your living quarters. Rather than get rid of it -- after all, you paid a lot to acquire it -- you're more likely to get a bigger place.

However you look at it, there is quite literally no profit in considering sunk costs.

All this ran through my head as I watched the women walk away loaded down with beads. So I concentrated on the money I had received. That definitely eased the pangs a bit. More importantly, I asked myself if I would really have made use of the beads. No, I wouldn't. We'd transport it 1,500 miles to Phoenix, and they'd still sit unused. Even if I did pull them out, I'd probably start on a new project, which would, like the others, go unfinished.

So I thought about how the money got us closer to a deposit on a Phoenix department. And I went and looked at the empty space where the beads had sat in my closet. (Granted, the box was out in the living room, but it was a lot lighter than before. It will get emptied, one way or another, then the organizers and file box will get sold too.) I felt lighter. Suddenly, it didn't matter how much the beads were worth. The only thing that mattered was how much I got for them.

I'll probably experience this a lot as we go through our possessions. We're going to set prices at what we think will sell, not what we think we might be able to get. We're thinking in terms of a garage sale. In fact, I have a friend who just bought a house, and I'm probably going to try and convince him to let us use the place for a yard sale. It will help to liquidate things more quickly.

Still, there are heavy and bulky pieces of furniture we won't want to transport the 30-40 blocks. The bentwood rocker, an end table and set of drawers that are quite solid and an armoire we couldn't fit into the car even if we wanted to. Those we'll price cheaply and get them gone. From what I've seen on Craigslist, we could probably get $30 for the bentwood rocker if we didn't mind waiting.

But we do mind. In fact, it's looking like we'll be moving at the end of the month. (Long story. I'll try to address it in another post.) So we'll price things cheaply: $15 or less for the most part. And we'll be reminded just how quickly the small amounts can add up. Even if we don't get the full value.

Because at this point, their full value is a sunk cost. And that's not something to base our decisions on.

what we paid for them.


Anonymous Shevy said...

Wow, moving at the end of the month? Did you give notice at the end of July? My head is spinning, girl, I can't imagine what yours is doing! I'm waiting for the explanatory post.

August 4, 2009 at 1:03 PM


Post a Comment

Subscribe to Post Comments [Atom]

<< Home