Are You Eating Your Retirement Savings?

Some of my acquaintances think it’s impossible to save nowadays. They say there is nothing left after taxes, housing, and basic social expenses. One person even said it’s getting to the point that $50,000 is not enough to live in Chicago.

This seemed curious to me, so I started a discussion and ran some numbers. Our conclusion: he could live on that money and save more. The problem was he was eating his retirement savings.

Why focus on food?

There are many things you can do to boost savings. You can earn more. You can cut back on social activities. (Incidentally, saving more is better than earning more for a specific goal).

I focus on food for one reason. It is about 15 percent of our spending, and a stunning one-third of that comes from expensive meals at restaurants (see: cool chart from the BLS).

Eating at home is within your control and can make a big impact. Plus, preparing food will likely help you improve your biggest asset (even bigger than your career). For the person at hand, a few small improvements boosted his possible savings by 20 percent.

I will stylize our discussion for this article. It dealt with a hypothetical single-filer living in Chicago. Let’s go to the numbers.

What you can’t control immediately: taxes, loans, housing

It’s instructive to estimate costs that cannot be immediately changed. We conservatively estimated living costs in Chicago for the single-filer and came up with these annual figures:

Category Yearly cost ($)
about 1/3 to taxes 16,000
$900 monthly rent 10,800
$500 monthly student loans 6,000
$500 TV, utilities, cell bills 6,000
$200 health insurance 2,400

Granted these are very rough figures, but let’s take it as a starting point.

Note there is only $8,800 left to spend on personal expenses.

Personal expenses like food are in your control

The good part is food is a relatively controllable expense. You can eat out all the time, or you can go to clubs and get bottle service, or you can decide to live frugally.

Frugal living can make a huge impact in saving. Imagine one cooked at home for a few meals instead of eating out. We estimated the change would reduce the $500 monthly food expense to a $350 one (some people spend less and still eat well). This change aggregates to $1,800 a year.

This is a decent amount of money. In fact, that’s over 20 percent of the $8,800 that is available to save!

But what if you can’t cook?

It was at this point that I got into an argument that cooking at home is not realistic for young people. They don’t have time or don’t know how.

My response was simple: then learn and make it a priority. When you have limited resources, you have to take extra steps and accept your situation. You can’t change the tax code; you can’t change your debts; you can’t change the price of gasoline. But you can change your lifestyle, like what you eat.

(If you’re interesting in learning how to cook, here’s a decent cooking site that appeals to technical people.)

What’s are your tips about eating at home to save money?



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  • Norm

    As a family of 5 with 3 young kids, the $ difference between eating out and eating at home can be huge. We find that using take-out is a good compromise. You usually buy only the food (not expensive drinks or desserts) and, in the case of pizza at least, can take advantage of “take-out only” deals. If we eat out, even at McDonald’s (relatively cheap) the bill is about $30. Take out pizza which the kids enjoy just as much? $16.

  • Christina

    Some nice points!

    Some tips of mine:
    -Pasta is very cheap and very easy to make. (No one can claim they don’t know how to boil water).
    -Food gets cheaper if you can buy it in bulk. We buy freezer bags of chicken, and other things, like frozen pizzas or tilapia, from Sams Club. They last pretty much indefinitely in the freezer.
    -If you’re cooking for yourself only, just cook some extra and have some for lunch or dinner the next day. Most meals can handle being repeated once or twice.

    Hope that helps!

  • http://winepairings.blogspot.com Greg Turner

    This is a great post. Not only can people save money by eating at home, they can eat healthier, too. And, learning to cook has additional benefits. It can help people better manage their time. I wrote on a post on the subject:

    http://winepairings.blogspot.com/2008/04/simultaneous-processing-another-reason.html

  • http://www.mawsoft.com/blog RohoMech

    Pretty cool tips, don’t forget about rice! Especially if you have a rice cooker. Combine that with a crock-pot and its quite easy to have a great meal waiting for you when you come home.

  • http://www.mindyourdecisions.com/blog/ Presh Talwalkar

    Christina:
    Thanks for the practical tips.

    Greg Turner:
    I completely agree on the health. Even the unhealthy food I would make at home would have less preservatives and grease than restaurant food.

  • http://www.mindyourdecisions.com/blog/ Presh Talwalkar

    Norm:
    Interesting points, especially that savings scale with larger families. I also find myself eating smaller portions with take-out. I wonder if it has something to do with being in a controlled environment, or knowing that I can just refrigerate leftovers right away.

  • Norm

    Presh, I forgot to mention that the “compromise” is the part of the Game Theory of the situation. The kids don’t like frozen pizza or other attempts to replicate restaurant food, but they seem to feel just as “spoiled” by take out as they would by going out somewhere. By finding these acceptable compromises (and no, the inmates don’t run the asylum :-) ) and the length we can stretch them out we’ve cut back eating out to maybe once every 4-6 months. We get take out about once a month. Also, telling the kids ahead of time when we’ll be going helps to stretch things out too.

  • http://www.mawsoft.com/blog RohoMech

    I wonder if food manufacturers will try to exploit this trend of “eating-in”, I’ve already seen a lot of companies (like White Castle / Home Run Inn Pizza) who sell essentially frozen take-out at the grocery store for pretty much the same price, unless its on sale. So, waiting for a sale might also be a cost-effective way of “eating out”

  • Mahesh

    Another dynamic of eating out is that “unhealthy food” as in fried foods are cheaper than grilled food. For e.g. in McDonalds a grilled chicken sandwich is more expensive than a fried chicken sandwich.
    The same dynamic works in Subway too. A salad is more expensive than a sandwich for the same components that go into the making of the sandwich or the salad.

    Eating out healthy can be an expensive proposition or may not be possible as the dynamic of the food industry is that while healthy foods can be expensive, it does not work the other way. Expensive foods don’t have to be healthy.

    I don’t know if any of all y’all noticed that Taco Bell, McDonalds are all on a remodeling spree to attract the crowd that is going to come in as the economy sours.

    Mahesh

  • http://www.mindyourdecisions.com/blog/ Presh Talwalkar

    Norm:
    Wow, eating out every 4-6 months is impressive. Given that many people do it every day, I would say even limiting it to once or twice a week would be a great improvement.

    And you’re right that psychology affects how we enjoy things. I have heard of parents who replace products with generics, but put them in the brand name box (like cereal). No one can tell the difference!

    RohoMech:
    I once calculated that Home Run Inn Pizza is less expensive per ounce than the restaurant equivalent. I wondered how that could be. It made me realize that most restaurants (like McDonald’s) don’t really prepare food–they just reheat it. In a sense, going to a fast food place is like paying someone to heat up food for you, so it should cost more. What a weird dynamic.

    Mahesh:
    I have a guess of why healthy food costs more, and I think it’s because the food quality and food preparation costs more. Healthy food has a shorter shelf life and the cost of spoiled food has to be averaged.

    It is interesting that all those fast food places are gearing up with low-price and low-quality food. I would like to tell people to focus on instead on low-cost (and healthy) starches:

    http://www.drmcdougall.com/misc/2008nl/mar/foodcost.htm

  • Joon

    It’s very possible this has been addressed in a previous article(s), but let me ask anyway. What exactly is the importance of saving. Certainly it’s always good to have liquid assets in case things happen. However, what are you saving for down the road? Eventually you should be spending the money you saved, right? Naturally, everyone has a need to save for retirement; everyone will have their target and know what they need to save.

    It’s also pretty obvious that cutting down on extravagant expenses is advantageous. You can use your money more responsibility without sacrificing your happiness as evidenced by your previous articles.

    In short, why should I be saving? Is it for security, retirement, or perhaps just for the love of money?

  • http://www.mindyourdecisions.com/blog/ Presh Talwalkar

    Joon:
    Good question about saving. Eventually most of us will retire, so we need savings to cover expenses in the future. Yes, the goal is always to spend as much as you can for as long as you can. This sounds like a good topic for discussion. So I’ll address it in more detail in a future post :)

  • http://interrobangblog.blogspot.com/ Matt

    It is funny, I just wrote a blog post talking about much of the same stuff you are referring to here: saving by focusing on food, but written for grad students: http://interrobangblog.blogspot.com/2009/01/prosperous-grad-student-beyond.html.

    Great stuff you’ve got and I was happy to come across it.

  • http://www.mindyourdecisions.com/blog/ Presh Talwalkar

    It’s like they say, great minds think alike :) Thanks for the comment and I liked your article.

  • http://interrobangblog.blogspot.com/ Matt

    Haha. thanks! Keep at it!

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