When to Cut Your Losses: Sunk Costs and Productivity

Have you ever got half way through a book, known it wasn’t for you, but carried on anyway because you didn’t want to waste the time you’d already invested?

Have you ever started a project which you saw through to the bitter end, because even though you knew it wasn’t working, you’d already poured hours into it?

It’s very easy to end up wasting time by sticking doggedly with things which we’d be better to just quit on. We’re often anxious about the time we’ve already “spent” on something – even though that time is gone, for better or for worse.

In finance and business, there’s a concept of “sunk costs” – costs which have been incurred and which can’t be got back in any way. If we were all totally rational, we’d accept that our present actions have no bearing on these costs; they’re already gone.

But we’re emotional creatures. Let’s say you spent $20 on movie tickets, and then you read a review of that movie which made you realise you’d probably hate it. You might well go to the movie anyway (and find that you do indeed hate it), just because you’ve already spent that money.

The same thing happens with our time. If anything, the effect can be stronger; with money, it’s easier to see that throwing more money into a failing project won’t help. With time, we’re often so emotionally attached that we carry on.

Throwing Good Time After Bad

Let’s say you spent all your weekends for three months learning the guitar. By the time three months are up, you’ve realised that you hate the guitar and you’re never going to get to any professional standard at it. But to quit now would make you feel like you’d “wasted” the last three months.

The thing is, the most productive use of your time is simply to quit. There’s no sense in spending another three months trying to learn the guitar if you already know that it isn’t for you.

This applies to almost anything:

  • You’re half-way through a degree which you’ve realised was a mistake
  • You start writing a book and you hate it by the time you’re 50 pages in
  • You take a series of classes but you’re not getting anywhere after a few months

We’re often tempted – especially when money as well as time is at stake – to keep struggling on. And sometimes you do need to push on through a difficult period in order to see results. But sometimes, the sensible thing to do is to give up.

How to Bail Sensibly

I hate it when I realise I’ve wasted time on something. I’m a bit of a plate-spinner and I tend to start lots of projects. Inevitably, some don’t work out. I quit my first blog having lost all interest in it. I’ve given up on books and courses and forums and games and all sorts of things.

Here’s how to bail sensibly:

  • Ask yourself whether, knowing what you know now, you’d even start on Project X or Hobby Y or Relationship Z. If the answer is “no”, then resolve to quit.
  • Cut your losses. The sooner you quit on something which is failing, the better.
  • Get to an end point (if possible). Sometimes, it’s worth hanging on long enough to close up a few loose ends. Maybe, you can take one more exam and get the credit for that course you’re on. You may not even to spend any extra time: you might just need to do something like ask for a reference.
  • Recoup any costs you can. You can’t get your time back, but you may be able to recover some money (e.g. selling off equipment or course materials which you paid for).
  • Learn from what went wrong. Did you make a snap decision to take on something which you regretted? Did you get talked into a particular course of action by a friend? Figure out what went wrong now, so that you can avoid making the same mistakes again.

You’ve probably got one or more things in your life which aren’t working out for you. You’ve sunk time and maybe money into them. Perhaps it’s a project or a hobby or a course. It might even be a job or a degree or a relationship. If it’s not working and, realistically, it’s not going to work … then bail on it.

(Image from Flickr by vvvracer)

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7 Responses to “ When to Cut Your Losses: Sunk Costs and Productivity ”

  1. Andy Hayes says:

    Great advice. I have been working on a couple of projects and finally have decided to close them off just this weekend.

    It’s hard to have spent money/effort and have little to show for it, but don’t discount the value of knowledge and lessons learned.

  2. Marci Diehl says:

    Today’s the day that three blogs have posted advice and ideas I need to hear — and take to heart. We’re always so pumped up on “Quitters never win and winners never quit” blah blah that rarely does someone point out that sometimes it makes sense to quit AND THAT’S OK. Sometimes we need to quit a project, a client, a place or a relationship — whatever just isn’t working, sucking precious time or is draining our spirit. Thanks for the reminder.

    • Ali says:

      Thanks, Marci! It’s always good to know when a post reached someone at the right moment. I think quitters are often winners in the long run…

  3. Bailing on things is a common thing in my life. I’ve done it all, from books to colleges. When we do something like it, we have gained more then an outsider can ever see. But the problem here is fear. People are still afraid of giving up on things that aren’t really working or on those they don’t feel are the best choice for them. So it’s great that you decided to talk about this example.

    Bailing on something that’s big or small is actually very feeing. And it leaves you time to give something else a chance.

  4. Charlie Hill says:

    Hi Ali: I am a loyal fan of yours and love your insights. However, this post brings to mind a certain person who recently bought a guitar after longing for one for a long time. So, how is that going? Are you going to keep playing? Inquiring minds want to know!

    It is not always easy to quit things, it is something that can conflict with core values like loyalty, resilience and committment. But you are right, a sober look at activities, work and relationships may reveal that it is time to move on. Quit. Vacate. Give notice. Suspend operations. Break up.

    • Ali says:

      Hehe, cheers, Charlie! The guitar was going great for about a week; sadly, it’s currently wrapped up in a box in my parents’ house (I’m in the middle of moving — it’s been a complicated month). So I haven’t been able to play it for a few weeks.

      I’m looking forward to getting back to it over the summer and getting a bit further than playing the Smoke on the Water riff… :-)

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