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I recently read an article on Wait But Why that discussed the difference between the mindsets of a chef and a cook.
A chef is someone who uses raw ingredients to invent recipes. A cook, on the other hand, is someone who follows recipes.
A chef reasons from first principles. They get their hands dirty, analyze data, and attempt to create something from nothing. A cook merely follows the instructions already set by a chef.
Recently I have been trying to cultivate a chef mentality in regards to personal finance. I don’t want to just blindly follow traditional financial advice. I want to look at raw data, do my own analysis, and develop my own opinions.
So far, from doing my own analyses I have discovered that:
Investing in individual stocks is probably a horrible idea.
Saving up 25 times my expenses is probably overkill.
Earning active income in retirement is a wonderful idea.
Savings matters far more than investment returns for early retirees.
Today I want to tackle another classic personal finance topic: does dining out actually hurt your finances that much?
In an earlier post, I shared that I can make a meal at home for around $2.
If we assume I eat three meals per day and cook each meal at home for around $2, then over the course of a month that’s $2 * 3 meals * 30 days = $180 spent on food.
This would be the minimum I could spend each month on food. This would be “Frugal Zach.”
Instead, consider the other extreme where I only dine out and never cook at home. There’s this great Mediterranean joint near my apartment where I occasionally buy $8 platters. These platters are massive so hypothetically I would only need to eat two per day to be full.
Obviously I wouldn’t eat at this same restaurant for every meal, but let’s assume that it costs about $8 per meal each time I dine out.
If we assume I eat 2 meals per day at $8 per meal for 30 days, I would be spending $8 * 2 meals * 30 days = $480 per month on food.
This would probably be the maximum I could spend each month on food. This would be “Careless Zach.”
In reality, I typically spend about $200 per month on groceries and $100 per month dining out, for a total food bill of $300. This would be “Actual Zach.”
Here’s how much I would spend over the course of an entire year for these three scenarios:
Here’s how much I would spend in each scenario over the course of 10 years:
Suppose I transitioned from $3,600 yearly “Actual Zach” spending to $2,160 yearly “Frugal Zach” spending.
This would be a yearly savings of $1,440. Suppose I invested that $1,440 each year and earned a 7% rate of return:
That’s a decent chunk of change.
Consider instead if I transitioned from $3,600 yearly “Actual Zach” spending to $5,760 yearly “Careless Zach” spending.
This would be a yearly spending increase of $2,160. Suppose I invested that $2,160 each year and earned a 7% rate of return:
I would lose out on $31,932 over the course of 10 years.
- If I buckled down and cooked all my meals at home, I could save about $1,440 per year, which would grow to $21,288 if I invested it for ten years at a 7% rate.
- If I threw cooking out the window and dined out for every meal, I would spend $2,160 more per year, which would be a loss of $31,932 if I instead invested it for ten years at a 7% rate.
- I could either stop dining out entirely and save $1,440 per year or I could just find a way to earn $1,440 more per year to cancel out those costs.
- Dining out has obvious benefits – it’s a time saver, it requires little work, and it’s convenient. In my mind, it provides value. And it’s okay to spend on things that bring value.
- Dining out doesn’t break the bank for me, but I’m sure it’s a bigger financial burden for larger families with more mouths to feed. In addition, learning to cook is a valuable life skill. I’m not as frugal as I could be with my food expenses, but I have found that a healthy blend of cooking at home with ocassional dining out works best for me and my daily schedule.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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