Slash Food Expenses While Eating Healthy: Part 1

Food expenses are typically our third largest expenditure (after housing and transportation), with 10 – 15% of our spending going towards food consumption. Unlike with the other two major expenses, one can implement changes immediately to increase cash flow, completely avoid up-front costs, and have savings (accelerate) or build upon themselves, since the expenses are recurring like one’s cell phone service. The objective is not to skimp on one’s diet – sacrificing the benefits of good health and fitness at the expense of savings is an unworthy trade-off in the long-run  – but rather to cut down wasteful habits and possibly even improve diet quality at the same time. While some may enjoy cooking up staples like rice and beans, lentils, ramen, or potatoes,  many will (rightfully) groan at the thought of subsisting on these foods. A methodical strategy to trim food expenses should ideally increase variety and nutritional value of the food consumed. This post will serve as an introduction to a series on optimizing one’s food expenditures.

Where to Trim Food Expenses: Largest Savings Potential First

As mentioned earlier, food expenses for a typical American household make up about 10 – 15% of the overall spending. The % of spending on food decreases as one earns more, but the overall dollar amount increases tremendously (poorest households spend under $4k/yr vs $15k+/yr for the wealthiest). What is consistent for all households regardless of income, food away from home is a near constant 5 – 6% of one’s spending and this number has been rising for all households since at least 1970. If you glance over the USDA source, this trend has been a disaster nutritionally (calorie consumption and nutrients we already over-consume increase, while nutrients we under-consume decrease for food away from home vs at home) and possibly has contributed to our obesity “epidemic”.

Nutrition aside, let’s consider the true cost of eating out. A typical meal at your so-so restaurant will run you $15/person according to Morgan Stanley (of that, only 1/3 is typically spent on the ingredients themselves). Once you add in the taxes (~5%) and tips (~18%), the total check increases to ~$18.45 per meal (could be 2% less with a rewards credit card). Assuming you could prepare a similar dish yourself (not unreasonable since we are at a so-so restaurant) within the same allotted time (20 minutes?* You would have quite the problem if you cook your steak or burger longer…), your own labor costs are $18.45 – $5 = $13.45 for the meal or $40.35/hr after-tax (since unlike a restaurant, you have no other overhead). Assuming approximate 30% taxes / Medicare / SS deductions from a paycheck, and using the quick rule of thumb for 2x hourly to salary conversion, you can make ($40.35/hr : (100% – 30%)) * 2 (hr to $1,000 annual salary) a whopping $115,000/yr to be your own chef and cook your own meals!!

Equivalent Salary Explained

I want to clarify the meaning of the above equivalent salary, since thinking in terms of trade-offs between income and expenses may not be obvious to most readers. Consider the following. In scenario 1, you make $115,000/yr at your job, you work for 20 minutes, and you receive your after-tax paycheck immediately after. Your tack on an additional $5 to this amount, go to a restaurant, order your meal, and you will have the exact amount to cover it. End result: 20 minutes of work + $5 to receive your meal. In scenario 2, you pick out $5 of ingredients from your refrigerator and make your food in 20 minutes. End result: 20 minutes of work + $5 to make a meal. Unless you really dislike preparing meals, by all means, exchange your labor for food preparation, but odds are you aren’t thrilled about your job either. Odds are you also aren’t making $115,000/yr (and even if you are, cooking still makes for great overtime pay!) – assuming it’s closer to $40,000/yr, you are exchanging 20 min * $115 / $40 = 57.5 minutes of labor at your job for 20 minutes of cooking. Finally, most Americans including those on a $115,000/yr salary cannot find additional work at an equivalent salary or receive paid overtime.

Replace any forgetful meal out at a so-so restaurant (in the above scenarios, you are still paying $5 for the ingredients, so you are not skimping on nutrition or quality!) and you are saving at a salary equivalent of $115,000 per year for your cooking labor, 20 minutes at a time.

Savings Overview

Summary: Think about cutting back on your meals away from home and replace with your own cooking. Simply prepare similar dishes and do not skimp on ingredients (to be covered in a later post). Start thinking about your daily decisions in terms of trade-offs and make quick estimates of an equivalent salary for alternative options to decide whether the alternative makes financial sense.

Amount of time to implement: Short-term, some time may be required to experiment cooking your desired meals. Long-term, time is saved*. No effort thereafter, as cooking skills improve. Additional benefits will be discussed in a follow-up post.

Savings: Foregoing meals at restaurants and making them at home using your own cooking labor, pays $115,000 per year in overtime salary equivalent, without a decrease in wants and nutritional value.

 

* – In the above calculations, I am ignoring time to clean-up, since it would be overshadowed by the time spent getting to and from the restaurant and ordering food (as well as the potential transportation costs).