Reprogramming Directive

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One girl's quest to go from audit files to Broadway

The “I Might As Well” Trap – Confusing Sunk Costs, Incremental Costs and Opportunity Costs

This entry is part 2 of 3 in the series Dream Traps - What's Stopping You?

If you’re a fairly easy-going person, chances are you’ve used the phrase “Oh, I might as well” before. Once or twice usually isn’t a problem. It becomes a problem when once or twice turns into every so often which inevitably becomes every time. “I might as well” is probably one of the reasons why I’m still in audit.

We say “I might as well” for a lot of reasons, but mainly because:

  • We think it won’t take a lot of additional time or effort, OR
  • We lack direction and don’t really know what we should/want to do
  • We can’t bear the thought of throwing in the towel after spending X amount of time and Y amount of money already on something (because that would be like failing)

Most people who have studied economics would be aware of the terms “sunk costs” and “incremental costs”.

“Sunk costs” are those costs which have already been incurred and no matter what you do, you can’t change that and get your money back. In accounting and finance, when we learn about what information to include in a decision-making models, we exclude “sunk costs” since no matter what is decided, those costs cannot be recovered and therefore shouldn’t affect the decision one way or another. It’s easy to condemn bad decision making when it’s presented in textbook format but it’s very hard to acknowledge it when it comes to sunk costs in your own life. In other words, you’ve already invested time and resources into your situation, so you “might as well” go through with it to the fullest extent.

“Incremental costs” are those additional costs which you will incur in order to do XYZ. You can avoid incremental costs by deciding not to go through with XYZ as they are future costs which you haven’t committed to yet. If you’ve committed yourself to those costs and you can’t do anything about it, they become sunk costs.

Mistake #1: Failing To Consider Incremental Costs When Deciding What To Do

When I was selecting my subjects in high school, I had no idea what I wanted to do. I hedged my bets and took mainstream subjects which were supposed to give me a higher UAI score. Lo and behold, before I even realised it, 8 out of the 10 minimum units were taken up by 2 subjects, 1 of them maths. I don’t even like maths!

According to the Board of Studies NSW, each unit of study requires 60 hours of classroom study per year. I ended up wasting a lot of time.

That’s 18 hours of class that could have been spent on more relevant subjects that would have helped considerably and that I enjoy:

  • Drama – I could have learned about dramatic structures and techniques
  • Design & Technology – I could have learned about set design
  • Textiles – I could have learned how to design and make costumes

Or 18 hours that I could have spent on extracurricular activities like:

  • Joining a local musical society
  • Staying involved in choral activities in high school and producing the third instalment of “A Night On Broadway”
  • Trying to write a high school musical like so many great Broadway composers (side note: apparently it would help tremendously if I were also male and named “Stephen”; maybe I should change my name to “Stephanie”)

None of these were sunk costs when I was selecting subjects. They were all incremental costs that I should have thought about when I was making my decisions.

Mistake #2: Considering Sunk Costs When You Shouldn’t

I am still stuck in the “I Might As Well” trap today. You would think after coming to the realisation that I didn’t want to be in accounting I would have stopped right then and there and figured out what I could do with my life. Instead, I thought “I have a steady job so I might as well go back to work while I figure out what I want to do.” I then thought “I might as well start my CA while I’m here.”

2 years comprising of 500 hours of study and about $10,000 later (5 modules at approximately $1,200 tuition fees plus $600 in study support), I’m now in the middle of studying for my final EBA exam and my care factor is non-existent.

After every module, I would kick myself. What was I doing, continually racking up these study costs? But I couldn’t stop, not only because that would be admitting failure but because it seemed like such a waste of my undergraduate degree and my entire internship. It also seemed like a tremendous waste of the modules I had completed to date, especially after I had completed the FIN and TAX modules, since they were perceived as the “hardest” and by then I was halfway through my technical modules.

What could I have done with 500 hours and $10,000?

I continually kept thinking about the costs of my degree, my internship and the modules I had done to date. These costs would only be relevant if I am going to continue to pursue a degree in business. But the moment I decided I’m going to pursue my dreams of music, these costs became irrelevant; they were sunk costs. I would have been much better off disregarding the CA altogether.

The Root Cause: Forgetting The Opportunity Costs

We all know we should weigh the pros and cons of each decision, but most of us are pretty terrible at it since humans are naturally both loss adverse and risk adverse, “a bird in the hand is better than two in the bush” and all. Thus we always tend to choose the safe option of what we know, rather than chasing the uncertain dream. But we forget that in doing so we tend to overvalue what we have.

“I Might As Well” Is Not Good Enough

It’s really easy to just go through the motions every day, forget why we’re doing things and just go along with the flow because you “might as well”. But a day becomes a week which becomes a month and before you know it years have gone by and all you’ve done is live life by going through the motions.

I look back at my life for the past two years and I can count up the total number of meaningful things I’ve done that really mattered to me on a “this is my reason for living” level on my two hands. Assuming each meaningful thing takes an average of 1 day, that’s at least 355 days out of the year on which I am not doing a single, meaningful thing.

That’s a pretty miserable way to live life. It’s not life at all, it’s a waste of a life. I think Jonathan Larson summed it up best in these lines:

One Song Glory

From the pretty boy front Man
Who wasted opportunity

Every time I hear Adam Pascal sing those words I get a chill.

Some people might be lucky enough or focused enough or self aware enough to be doing meaningful things every single day of their lives.

Another Day

There is no future
There is no past
I live this moment as my last
There’s only us
There’s only this
Forget regret
Or life is yours to miss
No other road
No other way
No day but today

The rest of us are generally too afraid or too complacent. We lose sight of the big picture and get stuck worrying about these sunk costs. Or we get caught up and forget to consider incremental costs. And so we end up with a really big bill in opportunity costs.

I don’t want to keep putting off living life to “another day”. There’s “no day but today“.

“What Do You Want To Be When You Grow Up?”

It’s a question we get asked a lot as little kids, perhaps in kindergarten or even pre-school, not just by our friends, classmates or teachers but family, parents and the world at large. Answers vary from the “ordinary” (“I’m going to be a teacher/nurse/business person!”) to the exotic (“I’m going to be a firefighter/pilot/famous!”) and to the fantastic (“I’m going to be an explorer!”).

Some of us grow up to be exactly who we wanted to be. For those lucky few, I congratulate them in their achievements, their single-mindedness and ability to stay focused on their goals. Some of us grow up not knowing who we want to be, but find ourselves falling into our dream career along the way. I congratulate them too.

Most of us grow up to be something other than who we wanted to be. Maybe it was because of pressure from family and friends. Maybe we lost sight of the goal. Maybe we thought we weren’t good enough. Maybe we let the opportunities slip by.

We grew up, forgot how to dream and now we ask little children, “What do you want to be when you grow up?” and we chuckle at the answers. Sometimes in affection, sometimes in amusement; oftentimes in part-disbelief and part-condescension.

For me, it was fear.

Ever since I can remember, I grew up living and breathing music. I loitered outside the door when my aunt gave piano lessons on the weekends in her Hong Kong apartment, sneaking peeks through the keyhole and then climbed up on the stool and tried to mimic her students between lessons. There’s a baby photo of me with one of those telephone keyboard hybrid toys, smiling as I dial away on the keys. After we moved to Sydney, I remember not wanting to eat dinner because I wanted to finish learning the “A Dozen A Day” piano exercises I started two hours before, a timeframe in which my parents thought I would surely tire of the activity and happily come to the table for food.

I went to class singing songs in my head – if it was a music class, it became either singing or playing songs aloud – and between classes there was more music with choir practice, auditions for school productions, chamber choir rehearsal, vocal ensemble rehearsals, piano lessons, piano competitions – the list goes on and on. I collected a bunch of trophies and certificates from eisteddfods and exams; performed in the Sydney Opera House and the Sydney Town Hall; held various roles in various school productions; I even went on a month-long tour of Italy with school, singing in St Mark’s Venice Cathedral.

It all stopped in Year 11. After I had gotten my L.Mus.A and finished my music HSC two years early, it came to a critical point where I had to make a call. Would I continue to pursue my music dream? Or would I look somewhere else?

I decided to look somewhere else. Despite dreaming – for years – of studying music in New York, I decided to play it safe. I studied “traditional” subjects, like English, Maths, Physics, Chemistry, Software Design and Development. I stopped all my extracurricular music activities – I turned down being Choral Captain, quit the vocal ensemble, the chamber choir, and the choir – and focused on academic studies. I applied for and got paid accounting internship offers with both Ernst & Young and KPMG, a great UAI and got into the prestigious University of New South Wales, arguably one of the best in the southern hemisphere for studying a Bachelor of Commerce with a double major in Accounting and Finance.

This world of numbers, rules, regulations, accounting and auditing standards and legislation is as far away from music as you can get.

Sometimes I run into people I got to know in the piano competition circuits around Sydney, like Van Anh Nguyen, who stuck with their dream of music and brought it to life. She’s established her own entertainment agency, a music school and found a way to make it all work. I really admire her courage.

When a little kid tells us “I’m going to be an explorer!” we don’t tell them that we already know everything there is to know about the world (we don’t), we don’t tell them there are no more lands to explore (there are, unless you’re living The Truman Show) and we don’t tell them this isn’t a practical career. We tell them “That’s wonderful!” and to study history and geography, join the boy scouts/girl guides/brownies/Duke of Edinburgh/Outward Bound programs and give them books about famous explorers or exotic places.

It’s not until that kid grows up (and in today’s society, that sort of happens around about the middle of high school, when you get your first chance to pick your elective subjects) that we start crushing their dreams. If it’s our son or daughter, we’ll smile a worried or an exasperated kind of smile and timidly question “But honey, don’t you think you should try something more practical? How would you pay the bills? What about accounting? There’s always jobs in accounting and they pay well.” If it’s our friend, we treat it as a big joke and laugh it off – or worse, dismiss it completely. “Oh come on, you don’t really want to do that, you’d have to give up XYZ then!”

Why do we do discourage and obstruct each other as we get older? Is it because we’re resentful that we didn’t stick to our dreams? If so, why do we take it out on other people instead of doing something about it ourselves?

When we see someone do something as remarkable as actually achieving their goals, we talk about how amazing it is, treat them as a one-of-a-kind individual who had the luck of the universe on their side and we write it off as something beyond our ability to accomplish. And we go back to our daily lives and forget all about it, though some of us might secretly wish that person was us.

I don’t think those people are one-of-a-kind people. I think we can all be who we want to be. And I think the key lies in those around us and ourselves in believing we can be who we want to be.

“What do you want to be when you grow up?”

I don’t want to be an external auditor anymore.

I’m 23 years old today and I’m going to turn 24 this August. I think I still have plenty of time left to grow up. And when I grow up, I want to write Broadway musicals.