My wife and I are having a disagreement as to what it means. She says that it means the cost of something you purchased some time ago, and had you not purchased it the money would be gone anyway.
Basically, 3 years ago we decided to purchase something to hold onto and sell later on when the value goes up. She says that the purchase price can be considered as profit since it was so long ago. I disagreed. Anyway, she calls it “sunk cost”.
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Forgetting that you put 100 bucks in your pocket and finding it 3 years later doesn’t make it profit. You two invested in something, and whether you make more money than you invested, the only profit is what is above the purchase price (minus tax and inflation and other costs like storage). It might be a pleasant surprise during your household budgeting to remember that you can get your investment back, but that’s not a sunk cost.
Sunk cost pertains to the risk and future expense into a potentially losing venture. It also usually relates to black or white, all or nothing scenarios, like the movie scenario from other posters. It can also apply to campaign donations…you may have given a candidate 1,000, but you have to decide whether to donate in the future. Do you continue to back that candidate because you already spent 1000? Or do you cut your losses/back another candidate? I put a $2500 down payment on a contractor to do my basement, but question the quality of their work ethic and business…do I continue to work with that contractor and pay them the rest of the money, or walk away? That down payment is a sunk cost that I’m not getting back.
TLDR, the purchase price is not sunk cost. It’s an investment that you forgot about/budgeted out of your finances. If you paid rent for storage and are deciding if you should keep your investment or sell it, the rent could be a sunk cost in relation to your investment.
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