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Here's Why the Sunk Cost Fallacy Is the Reason Behind "I Know What I Have"

Key fob next to dollar bills on laptop on table 11 photos
Photo: Karolina Grabowska on Pexels.com, with key fob added from pngegg by autoevolution
1966 Ford Mustang1966 Ford MustangTesla Model 3: TRUE Cost after 3 years & 45K MilesSNL sketch takes aim at Lexus Christmas ads, points out how ridiculous they areWheel and tire fitment - aftermarket componentsWashing a BMWWrite down or make a spreadsheet with the cars you are interested to buy. Write down phone numbers, just in case the ads expire. A screen-grab also worksFord Crown VictoriaBMW X1 riding on Brushed Gold Rucci Forged 30-inch wheels on Superior Shelbie & Ace WhipsBMW X1 riding on Brushed Gold Rucci Forged 30-inch wheels on Superior Shelbie & Ace Whips
Ever hear about the sunk cost fallacy? Does that ring a bell? Well, if it doesn't, it may be the reason behind the "I know what I have" statement in used car adverts, as well as the motive behind why some people have financial issues caused by putting too much money into their cars. If you are one of the two categories described, take a seat, this is for you to read.
Even if you do not recognize your behavior as one of the two patterns described, you may still fall victim to the sunk cost fallacy. Sadly, this is one of the traps that our brains trick us into falling, and it takes a bit of willpower to overcome, as well as the ability to take a step back and think.

Sentimental value is also a thing that is linked to the sunk cost fallacy, as well, so if you are not willing to let go of something because of what it means to you, even if it makes your bank account sob, you know what that means.

Now, before we get into it, I must say that each person should be responsible for their financial decisions, as well as for their finances and overall decisions in life.

If having a certain car genuinely makes you happier than anything else, and you are definitely certain that your world is over without it, you may be a victim of the sunk cost fallacy, but it may not matter to you anymore. My suggestion on the matter is to try to keep a close eye on what you spend for it, and what that expenditure brings for you in return.

Write down or make a spreadsheet with the cars you are interested to buy\. Write down phone numbers, just in case the ads expire\. A screen\-grab also works
Photo: Pexels.com
View it as a business' return on investment, just that putting money into your car hobby is not an investment, but an expenditure. Are you getting the most out of your time and money?

Once you have those written down, it is time to consider if there is something that would make you happier than that object does, and if the answer is no, keep it. Or just imagine your life without it. Would it be better or worse?

You can also go by the KonMari method and ask yourself – does it bring joy? I am writing about genuine joy, not just the idea of joy because you have a car that does not run properly, and you cannot get it to work as intended, but your imagination tricks you into thinking that getting it ready is just around the corner. Be realistic with yourself, it's not. Unless you do something about it, it is not ready.

Time for the sunk cost fallacy explanation. It does not always refer to money but also to time, energy, or pain. It influences your behavior, and it is the reason people stay in a relationship that does not make them happy.

Tesla Model 3\: TRUE Cost after 3 years & 45K Miles
Photo: Cleanerwatt on YouTube
Their motivation or reasoning is the fact that they have been in it for years, or when someone has the same vehicle for years, keeps fixing it up, and never gets it running right. It's the same thing, and there is a term for it.

In the case of money spent on car parts, the sunk cost fallacy will prevent people from selling their vehicles for their true worth, namely less than their current (astronomical) asking price.

That happens because the sunk cost fallacy puts a cloud of smoke over your eyes, and it leads you to believe that depreciation does not happen to your car. Another effect is the belief that the parts that you bought for it are worth just as much as they were when you paid for them.

Washing a BMW
Photo: Ethan Sexton on Unsplash
Sadly, in the real world, except for parts that are no longer manufactured, or really sought after, you will not get more for them than what you paid. Unless you paid scrapheap value for them and bought them by weight, you have something worth less than it was when you bought it. There are exceptions here, but that is how reality works.

This article is not necessarily about knowing when to let go of a vehicle, but when to draw the line between "investing in it," and just using it and maintaining it. There is a difference, as well as a fine line, and it may be better for you to figure it out sooner than later.

If this has made you feel bad about your behavior, do not beat yourself up about it, as we have all done this in one form or another. The governments of France and the UK have done the same with the Concorde.
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Editor's note: This article is not financial advice, but a nudge to help you consider getting financial advice from a certified professional.
For illustration purposes, the photo gallery shows various images of cars.

About the author: Sebastian Toma
Sebastian Toma profile photo

Sebastian's love for cars began at a young age. Little did he know that a career would emerge from this passion (and that it would not, sadly, involve being a professional racecar driver). In over fourteen years, he got behind the wheel of several hundred vehicles and in the offices of the most important car publications in his homeland.
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