Wednesday, December 2, 2015

Why You're Poor Reason #4 - Eating Part 2

In the second part of why eating out makes you poor we will explore how restaurants, bars, cafes, etc... all serve the purpose of not only filling the stomach, but also a sinister role in emptying your bank account.  In Part 1 of this series, I noted that Americans now spend more eating at restaurants than at grocery stores. Well, what does this all mean?

For one, it means as Americans WE LOVE to eat out. I personally love the occasional trip to local joints with the best food, but not the highest prices. Who doesn't love finding a small, family-owned restaurant with unsurpassed service and food quality to tell everyone else about?  The trend also implies more Americans find it either inconvenient to cook or do not know how.  I know many people who simply do not "have the time". They stop just about anywhere that's convenient to pick up any of their 3 daily meals. Many times all 3 meals in one day are eaten out. There are also people who plain 'ol burn the meatloaf every time and give up.  Which is a shame because with a little more practice they could be eating home cooked meals far better than most restaurants will serve you. Remember that cooking is a valuable skill learned over time.

Let's look at some data.

Below is a chart detailing the monthly CPI for Food & Beverage and monthly spending at Food Services and Drinking Places. The data has been indexed to 100 starting January 1992. What the chart shows is prices at Restaurants & Bars have been gaining more rapidly than the overall CPI for Food and Beverages.






Basically, the overall pricing trend within the restaurant industry means higher prices relative to grocery stores, convenience marts, etc... Interestingly, during the recession, prices only stopped increasing before continuing on their upward trend. In other words, this means eating out literally EATS UP A LARGER PORTION OF YOUR DISPOSABLE INCOME.  If you haven't noticed eating out can be quite expensive. Going to a moderately priced restaurant for two people can almost reach $50 total

Example:
2 entrees - $30
2 drinks - $8
Sales Tax(8%) - $3
Tip - $7
Total =$48

That one meal just cost you 2.5 hours of your work day assuming you take home $20/hr after taxes. If you eat out just once a week like this you have voluntarily added 130 hours of work which equates to 3.25 weeks a year. You just forfeited a nice 3 week vacation in exchange for weekly burgers and beers. I don't know about you but I'd rather spend less time eating out if it meant longer vacations and less time having to work for a living.

What does the average American household spend eating away from home each year? Now take a moment to think about what you spend.

The Bureau of Labor Statistics Consumer Spending Report(released Sept 2015) shows American households spent $2,787 eating away from home in 2014. That equates to $232 a month. If we sum 2012-2014 the average American household spent $8,090 on meals away from home.  That equates to 404.5 hours of extra work to pay for eating out! Or 10.11 weeks of self mandated work you gave yourself over 3 years .

Let's calculate how your eating out habit is affecting your finances.

For a moment let's consider that you haven't eaten out once in 3 years allowing you to save $8,090. How much money would you have if you invested the $8,090 and the ensuing $232/month spent at restaurants earning 7% for 10 years?  You would have $56,027 dollars sitting in your account and likely a slimmer waistline. Of that amount you would have contributed approximately $35,930 and your money would have made you $20,097! Looks like a very appetizing alternative to me.

The take-away(not take out) here is that Americans are self inflicting financial pain upon themselves for an easily fixed problem.  Curtailing the amount spent eating out can have a dramatic impact on your personal finances. By no means am I saying to never eat out, but if you could forego it altogether you'll be better off financially. The key is to finding the right balance that allows you to enjoy others cooking while still reaching all your financial goals. Once your financial goals are reached by all means go out and celebrate at a nice restaurant.


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