One of the best (and most depressing) numbers to look at when buying a car is the “true cost to own”, which factors in deprecation on a loan, interest, insurance, taxes, etc etc to give you a true idea of how much owning your car is actually costing you. Edmunds has a great TCO calculator if you’re interested in trying it out. For instance, a very modest 2011 Honda Civic LX 2dr Coupe with a MSRP of $17,555 will cost you roughly $32,440 to own over the next 5 years (with standard assumptions of a 5 year loan and 15k miles/year). Real quickly you come to realize just how bad owning a car is on your wallet.
This got me thinking: could the same same logic be applied to eating out? Eating out is almost unarguably more expensive financially (which can be easily calculated). Eating out also has a negative impact on your long term health (less easily calculated). In the book Fast Food Nation: The Dark Side of the All-American Meal by Eric Schlosser, he introduces the idea that the true costs of eating fast food are much higher than they appear when you factor in the environmental byproducts of mass-production of meat and corn, the economic byproduct of low wages and poor working conditions of those producing the food, and of course the long term negative health benefits and resulting financial strain placed upon you, your health insurance, and the health care system in general.
Health costs aside, let’s look at the more definable financial costs of eating out with some back-of-the-envelope math.
Using myself as an example: I tend to eat out about 6 times per month, usually socially, and the rest of the time I prepare my meals myself. I went back and looked at what I’ve spent recently on food. I spend about $20 each time I eat out, so $120/month. My groceries amount to about $300/month. So that’s $420/month. I don’t miss out on social outings with friends at all – sometimes I’ll eat out 2-3 times in a week, but many other times I won’t eat out at all. At the grocery store, I “shop the perimeters”, spending almost all of my money on core ingredients like fruits, vegetables, meat, and dairy and almost nothing on snack foods or drinks. I also tend to buy the highest quality food I can, in terms of taste, origin (local farms get my support more often than not), and preparation (organically raised meat gets my preference as well). Finally, I use almost everything I buy, very little food gets wasted or thrown away.
Now let’s take some educated guesses on someone who eats out more frequently. I know a lot of people who fall into this category. They tend to eat out about twice per day. My guess is that it averages out to be about $10 per meal, breakfast and lunch obviously being quite a bit cheaper than dinner, and the type of place making a big difference too. But that seems fair right? Factor another $10/day in drinks – Starbucks, sodas, and the like. Again, some people are higher and some are lower, but that seems like a pretty fair number. Then let’s estimate another $100/month on groceries because everyone buys some groceries for snacks and drinks at home. I’m not going to factor in alcohol, but I know many people who spend another $100-$200/month easy on drinks. I myself don’t drink much, so we’ll stick to comparing apples to apples.
Add all of that up and it’s $1,000/month in a 30 day month. Crazy right? Compared to my $420. The crazier thing to me is, that I know people who spend way more than that. Not only with drinking, but at Starbucks and nice dinners several nights a week. I also know people who eat three or more meals per day out. They’ll grab Dunkin’ Donuts on the way to work, go out to lunch with co-workers, and then pick up dinner or go out to dinner, and they’ll do that every day.
Yearly it’s a savings of $6,960 ($12,000 to $5,040) simply by eating out less. You can move the numbers around quite a bit and it’ll still come out to be a huge difference. And I eat GOOD. If I see a nice cut of filet mignon, I buy a few steaks without hesitation. I don’t mind spending a few bucks extra here and there to buy local produce. I like the preparation too – I view it as a life-long hobby that I constantly want to get better at. It’s something that my girlfriend and I do together almost every night that helps us get our minds off of our days and enjoy accomplishing something fun as a team. And the reward is so high: great food and huge financial savings.
I also don’t necessarily agree with the premise that eating out saves time. How long does it take to hop in the car, drive to McDonalds, wait in line (or the drive through), and drive home? For most people, probably 15-30 minutes. Most of the time my meals take less than 20 minutes to prepare. If they take longer, there’s usually down time where I can do other things. Plus I’m not putting the miles on my car or using gas, and I’m honing a useful skill rather than waiting in line. In some situations can it be more convenient to eat out? Sure, but in general I don’t think so.
Now it’s not all that easy to find real “data” to support this, although I don’t necessarily think it’s needed. They tackled this topic on the popular Get Rich Slowly blog a few years back. One experiment:
Last year I calculated that I was spending about $80 on food a week, mostly eating out as cheaply as possible. I decided one week to go the fancy organic grocery store in my neighborhood and buy $80 of food to last me a week. What I discovered was that I could fill my cart with more food than I’d ever eat in a week and still have $20-$30 to spare! I bought the richest foods, the most exciting ingredients, and kitchen staples such as oils and spices and fancy olives, and still had some dollars left.
As an experiment, Rob Cockerham spent all of February 2004 “eating in”, consuming only food from grocery stores. He calculated that he spent $11.55 per day on food and drink. (If you subtract alcohol, he spent $8.65 per day.) He spent 48 minutes per day preparing food. During March 2004, Cockerham ate all of his meals in restaurants. He spent an average of $20.08 per day. (He also left just over $1 per day in tips.) But it didn’t just cost more money to eat out: “The big surprise, for me, was how long it took to eat out. It was easy, when I was eating in, to whip up many meals in less than 8 minutes, but it was almost impossible to get my food that fast when eating out.”
Based on the math from Rob’s experiment, over the course of a year he would spend $7,329 eating out and only $4,216 eating in (using the $11.55/day number), for a difference of $3,113. He also supports my theory that eating out does not really save time.
From a pure financial standpoint, it seems as if it’s a no brainer to prepare all of your own food. As billionaire Mark Cuban says, saving money on the normal, recurring expenses in life is one of the best ways to have more money (duh):
I try to create as much transactional value as possible from that cash. I look at my annual budgets for everything and anything, and I look to see where I can save the most money on those items. Saving 30% to 50% buying in bulk–replenishable items from toothpaste to soup, or whatever I use a lot of–is the best guaranteed return on investment you can get anywhere.
Direct & Indirect Health Costs
And of course, there is the health factor. Let’s revisit that. There are three things I believe to be true:
- People are eating out more than they used to
- The food we eat out is generally bad for us
- More bad food has caused an obesity epidemic that shortens lives, decreases quality of life, and costs everyone a ton of money
From CBS BNET:
About a third of our calories are now eaten outside the home–nearly double the percentage in 1978. And when people dine out, they typically swallow more calories than when they eat at home. Women who eat out more than five times a week consume nearly 300 more calories per day than women who eat out less often. Children consume almost double the 440 calories they usually eat in a home-cooked meal.
Law makers are starting to get involved. Beginning earlier this year all chain restaurants in my home town of Albany were required to list calorie counts on their menus. As you can see from the picture of The Cheesecake Factory menu in the article, things are often much worse than they seem (2,130 calories for Chicken Bellagio, yikes!). As Men’s Health exposed with their Worst Foods in America article and later book “Eat This, Not That”, sit down restaurants are often worse than fast food joints:
A hidden force behind America’s obesity epidemic is the fact that many chain restaurants—which provide one-third of all restaurant meals, according to the New York Department of Health—obfuscate the fat and calorie counts of their menu items, and fight any attempt to shed light on what, exactly, is going on between their buns and inside their taco shells.
Of course, the quality of food that you get when you eat out is almost always worse too. From a Time article Getting Real About the High Price of Cheap Food:
But cheap food is not free food, and corn comes with hidden costs. The crop is heavily fertilized — both with chemicals like nitrogen and with subsidies from Washington. Over the past decade, the Federal Government has poured more than $50 billion into the corn industry, keeping prices for the crop — at least until corn ethanol skewed the market — artificially low. That’s why McDonald’s can sell you a Big Mac, fries and a Coke for around $5 — a bargain, given that the meal contains nearly 1,200 calories, more than half the daily recommended requirement for adults. “Taxpayer subsidies basically underwrite cheap grain, and that’s what the factory-farming system for meat is entirely dependent on,” says Gurian-Sherman.
A food system — from seed to 7‑Eleven — that generates cheap, filling food at the literal expense of healthier produce is also a principal cause of America’s obesity epidemic. At a time when the nation is close to a civil war over health-care reform, obesity adds $147 billion a year to our doctor bills.
That’s a lot of money. It’s gotten so bad that the Center for Disease Control and Prevention has their own Obesity and Overweight section of their website with the heading “American society has become ‘obesogenic,’ characterized by environments that promote increased food intake, nonhealthful foods, and physical inactivity.” The economic consequences are extraordinary:
Medical costs associated with overweight and obesity may involve direct and indirect costs. Direct medical costs may include preventive, diagnostic, and treatment services related to obesity. Indirect costs relate to morbidity and mortality costs. Morbidity costs are defined as the value of income lost from decreased productivity, restricted activity, absenteeism, and bed days. Mortality costs are the value of future income lost by premature death.
According to a study of national costs attributed to both overweight (BMI 25–29.9) and obesity (BMI greater than 30), medical expenses accounted for 9.1 percent of total U.S. medical expenditures in 1998 and may have reached as high as $78.5 billion ($92.6 billion in 2002 dollars). Approximately half of these costs were paid by Medicaid and Medicare.
So even if you and I are perfectly healthy, we’re paying the taxes to help cover these medical costs for others.
Tying it Together
Back to the original premise of the post: how would one go about calculating the true cost of eating out? Any formula would have to factor in at a minimum:
- Your actual food costs, which I think I’ve shown are significantly less when you don’t eat out.
- Your direct health costs from eating unhealthy, both in terms of dollars out of your pocket and a lower quality-of-life.
- Your contribution to all of the indirect health costs.
- The negative environmental and socioeconomic byproducts of producing cheap, bad food.