Tag: milestones

Sunk cost

I have noticed that we frequently let past decisions keep us from future opportunities. Let me explain what I mean by that statement. We worry too much about the ‘sunk cost’. A sunk cost is when you have already spent time or money, which can never be recovered, on something. I like to include them in the definition of sunk cost, primarily because time is a resource that once spent is gone forever.

An example of a sunk cost is you bought a season pass to a swimming pool. You can never recover the money spent on the pass, all you can do is utilize it to maximize your enjoyment. The money is gone, regardless of how often the pass is used.

One of the most common statements I hear goes something like, “We spent $xxx to do ____, so we cannot do ____.” Now if you fill in the blanks the statement might be, “I spent $10,000 on the car, it is now worth $7,000, so I cannot sell the car because I cannot get what I paid for it.” This is the sunk cost syndrome. We might be clouding our decision making by hanging on to the sunk cost. Maybe the outlook needs to change too, “I can get $7,000 if I sell the card today.” The idea is to not worry about what you spent but to focus on what you need to do moving forward. Another way to view this is to ask, would you make the same decision today?

Sunk cost syndrome creates a situation where we are hesitant to change direction or consider alternatives that had we not worried about the past decision the choice would be simple as well as different. I would suggest that when considering options try to avoid the sunk cost trap and don’t let past, unreversable costs stop what you have planned for the future.

Milestones

One of the most important elements of setting and achieving long-term goals and objectives is to celebrate milestones. A milestone is the achievement of an intermediate goal or objective. For instance, if the goal is to lose 30 pounds in a year a milestone might be losing 10 pounds. Now, we celebrate all kinds of milestones in our lives some are quick and easy, while others take years to achieve. Examples of quick and easy milestones are birthdays or anniversaries. We celebrate these out of tradition and without much thought.

Let’s explore what we could be celebrating as milestones if the goal much higher and make it a bit more complex. Something like saving for retirement or getting out of debt or starting a new business. All of which I am trying to do. I must admit that it is better to focus on one thing at a time. Like getting out of debt and letting retirement go to the debt is cleaned up. However, I have chosen to do all three at simultaneously, which is not bad just not the best. The reason is that what is going into retirement could be going to the debt which has a guaranteed ROI (example: 4% on the car loan, 5.25% on the motorcycle loan).

Back to the milestones. In most instances there are intermediate achievements within the larger goals that should be celebrated. These little celebrations will provide some added motivation and something to look ahead to in the drive to achieve a larger goal. An example might be, if the larger goal is to become debt free a milestone would be to reduce the debt by 20%. Or maybe the larger goal is to become a millionaire, a milestone might be when you have $100,000.

The idea here is to keep the momentum and energy up. If you have never celebrated a small victory, then you might lose sight of what is important. Celebrating the achievements and progress is very important.