We've all been there: continuing to pay for a gym membership we rarely use, holding onto subscription services we barely watch, or finishing a meal we don't enjoy – all because we've "already paid for it." This behaviour, known as the sunk cost fallacy, could be costing you thousands of pounds each year without you realising it.
The sunk cost fallacy occurs when we continue investing time, money, or effort into something simply because of our past investment, rather than evaluating whether it still serves our current needs. It's particularly dangerous in our modern subscription-based economy, where small monthly payments can accumulate into significant yearly expenses.
Consider your streaming services. You might be paying for Netflix, Disney+, and Amazon Prime, totalling around £300 annually. You originally subscribed to watch specific shows, but now you're keeping all three because you've "invested time in creating watchlists" or "might want to watch something later." This is your brain's sunk cost bias at work.
The same psychology applies to larger purchases. Perhaps you bought an expensive exercise bike during lockdown. It's now gathering dust, but you're reluctant to sell it because "you spent so much money on it." However, keeping it doesn't recover your initial investment – it's actually costing you in terms of space and potential resale value depreciation.
To break free from this costly thinking pattern, try this practical approach: Every month, review your recurring payments and ask yourself, "If I wasn't already paying for this, would I buy it today?" For physical items, ask, "If I didn't own this, how much would I pay for it now?"
By understanding and actively combating the sunk cost fallacy, you can make clearer financial decisions based on current and future value, rather than past investments. Remember, money already spent is gone – don't let it influence decisions about your future spending.
Next time you find yourself holding onto a service or item "because you've already invested in it," pause and reconsider. Your wallet will thank you.