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.

Read more…