Throwing Good Money After Bad

Throwing good money after bad summary: 

• Not all expenses are justified—if you’re spending money on something when it no longer makes sense, you could be throwing good money after bad. 

• Paying to repair an old car that’s worthless instead of exploring options to replace it is one example of throwing good money after bad. 

• Keeping an investment that’s losing value or staying in a job that’s no longer serving you are other ways you could be throwing good money after bad. 

Throwing good money after bad definition and meaning 

Throwing good money after bad happens when you let your emotions or history impact your actions in the present, even if the reality of the situation has changed. It’s related to the sunk cost dilemma or fallacy, which is when you have a hard time letting go of something if you've already invested a lot of time or money in it. 

However, just because you’ve already put your money into something doesn’t mean you should keep doing so—especially if circumstances have changed. If the investment, project, relationship, or job isn’t working out, it’s often less costly to cut your losses. 

Key concept: Throwing good money after bad and falling for the sunk-cost fallacy is likely to cost you more in the long run.

More on throwing good money after bad

It’s common to fall into the trap of throwing good money after bad because it can be hard to accept that you may have to take a loss on a project, relationship, or investment. Once we’ve already spent money, time, or effort on something, it’s hard to walk away—even if we know continuing won’t pay off in the end. 

We don't want to lose what we’ve already put into something, so we keep spending in hopes of turning things around. While optimism can be useful in some situations, you have to factor reality into the picture, too. Knowing when to cut your losses is a powerful skill in finance, and in life.

Real-life examples of throwing good money after bad 

Here are a couple of ways a person might fall into the trap of throwing good money after bad. For example, paying to repair an older car that’s long been paid off could be a solid personal finance move. But when the costs outweigh the value of the vehicle, that could turn into throwing good money after bad.

Sabrina owns a 15-year-old car that keeps breaking down. First, she takes $800 out of her savings account to fix the transmission. A few months later, the alternator fails, and she spends another $600. Not long after, the engine needs major work costing $2,000. 

By now, Sabrina has spent more than the car is worth, but she keeps paying for repairs because she doesn’t want to waste the money she’s already put into it. In reality, those dollars could have gone toward a more reliable replacement.

Marcus bought stock in a small tech company for $5,000. Over the next year, the company struggled, and the stock’s value dropped to $2,000. Instead of re-evaluating, Marcus convinced himself it would bounce back and bought more shares, sinking another $3,000 into the investment. 

The company later went bankrupt, and Marcus lost most of the money he put into that stock. He kept investing more simply because he didn’t want to admit the first $5,000 was a bad investment.