3 min read
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.
My favorite free financial tool I use is Personal Capital. I use it to track my net worth, manage my spending, and keep an eye on my monthly cash flow. It only takes a few minutes to set up and it makes tracking your finances simple and easy. I recommend trying it out.
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