Whether or not something is a sunk cost is not always black and white.
Last week, yours truly was duct taping two trash bags together, so that she could then duct tape those trash bags across her entire driver side window.
It was going to rain.
Just two days earlier, my driver side window had stopped working. At 221,456 miles to be exact.
And the week before that? A blown tire, some (much worse than normal) overheating, and a power steering fluid fill up.
In other words, the end is nigh on my current beater car.
Psst: In case you didn't know, I'm a beater car lady from way back.
So why exactly did I sink $70 into the window repair to my driver side?
Because it was sound personal finance strategy to do so. Let me explain further.
Sunk Cost Vs. Sunk Cost Disguised as Sound Money Strategy
You've probably heard the saying “don't throw good money after bad.” Basically, it means spending money on something that is going to cost more money and not last that much longer, versus taking that same amount of money and instead investing it into something that will last a longer amount of time.
It's spending $100 on parts for a small, DIY plumbing repair, which ends up not fixing anything and now on top of the $100 you have to pay the plumber to fix it anyway versus just having gone to the plumber to begin with.
It's spending $250 to repair a washer that is 15 years old versus shopping around for a new one.
And you could say, it's spending $70 to fix a broken window on a car with 221,456 miles.
Except then you'd miss the sound money strategy part.
You might think I should have spent that $70 on domain hosting fees for Frugal Confessions to keep the lights on for another year, or for baby food (yes, we're still in puree land), both of which are investing in my future.
But spending that $70 to have my driver side window fixed was an investment.
It bought me time.
And I've discussed before how taking the urgency out of any financial decision you're going to make − including purchasing a car − means you're going to make a far better decision than if you just bought something to quickly rid yourself of the problem.
Urgent, Or Desperate, Buyers Make Desperate Decisions
We would know, as we learned this lesson the hard way with the beater car we purchased several years ago.
Here's the rundown on that situation: We worked about an hour away from each other, and so carpooling adding significant times onto our overall day.
So when my current beater car died, we were overly eager to press the “fix-this-now” button and buy whatever was first put in front of us.
It turned out to be my worst beater car for a variety of reasons (least of which that it was overly priced to begin with at $3,500, then needed a $3,500 repair within two years of the purchase).
Fortunately for us, we were able to donate that car to Purple Heart. They sold it at action, and gave us a $1,200 tax write-off (which we could actually use because we didn't have to take the standard deduction). So, it wasn't a total loss! Not to mention, that car was actually a truck, and so it helped us move some furniture into our home from scores on Craigslist and Facebook Groups we got.
The second time around when that beater car died, we had learned our lesson.
Paul was able to rearrange his work schedule for a month or two and we carpooled, buying us some time to really shop around and compare our options.
Which leads us to this beater car, a 2003 Chevy Cavalier that has thankfully lasted almost 6 years now (at an initial price of $2,500, and no major repairs to date).
We've Got Time
With the $70 in purchased time, we're going to weigh our options and shop around for a new used car. Which I'm actually excited about, because this one is getting to be too much work to drive with all the leaks and things to check. Not to mention we purchased it before we thought about having a baby, and it only has two doors.
Hint: two doors with a baby is kind of difficult. There's lots of finagling involved to get that car seat into the carrier in the back. So, even if you're not sure if you'll be having kids in the future or not, you might just want to opt for a four-door.
Talk about making my day easier when we move to a four-door, non-overheating car!
Good things to come.
Do you remember a big financial decision you made because you were desperate? Did it turn out well, or do you now wish you had built in more time to make that decision?
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