## Restaurants are expensive enough. But when you look at the opportunity cost of eating at a restaurant (instead of cooking at home and investing the savings), the numbers can really “mushroom.”

One of the best tools that you can use to help build up your retirement savings is . . . a skillet. That’s correct. (A broiling pan or grill will work, too!) And no, this isn’t another post about how much you can save by cooking dinner at home instead of eating out. That’s only half the story. This is about the opportunity cost of eating dinner at a restaurant (or picking up prepared take-out food or ordering food to be delivered) as opposed to preparing that food in your own kitchen *and investing the savings over time*.

Opportunity cost is the benefit given up by choosing one alternative over another. Here, the opportunity cost of eating at the restaurant is the difference between the return from:

- cooking at home and investing the savings over time; and
- eating at the restaurant.

Because the return from eating at the restaurant is zero (since the all money has been spent on the meal), the opportunity cost of eating out is just the return from cooking at home and investing the savings.

To run some numbers, we decided to use the infamous “Great American Hamburger” as an example. Suppose you like to eat a hamburger (or a cheeseburger, turkey burger, veggie burger, salmon burger, etc.—whatever you like) once a week for dinner, along with lettuce and tomato and some ketchup. (This post is making me hungry already.) You can either cook your burger at home or have someone else do the cooking for you.

For comparison purposes, we’re using the cost of a regular cheeseburger at Five Guys on 14th Street in NYC, which is close to where Otterwize calls home. (And no, we don’t get paid by Five Guys for using this example. We just like their burgers.) As of the date of this post, the cost of a regular cheeseburger on a bun with lettuce and tomato is $8.19 plus $.73 in tax. Lettuce add (sorry) a 15% tip of $1.20, for a total of $10.12. The regular cheeseburger is made up of two beef patties weighing a total of 6.63 ounces. (We called Five Guys and also checked the **nutritional info **on their website.)

The closest supermarket to that Five Guys is the Food Emporium at Union Square, where the cost of ground beef (80% lean) is $3.99/lb. The cost of 6.63 ounces of ground beef is therefore $1.65 [(6.63/16)($3.99)]. If you add in the cost of one bun (a pack of 8 hamburger buns is $3.69, which equals $.46/bun) plus one leaf of lettuce ($.20), one slice of tomato ($.20), one slice (1 ounce) of cheddar cheese ($.25), and some ketchup ($.01) (at 10 cents an ounce, how much is a squirt of ketchup?), the total cost to purchase the items for the burger is $2.77. (There’s **no sales tax** on food purchased at grocery stores in NYC.)

So the net savings from cooking vs. buying one cheeseburger is $7.35 ($10.12 – $2.77). If you are 30 years old and you decide to cook one cheeseburger at home every week until you are 65 (assuming the cholesterol doesn’t number your days), the yearly savings (assuming away inflation for the purposes of this example) are $382.20 or $31.85/month. If you stuff that money in your mattress for 35 years, you will have saved $13,377 (which would be enough to replace your lumpy mattress plus buy a nice headboard and maybe even a whole bedroom set).

If you invest those monthly savings for 35 years and let the power of compounding do its thing, this is where the cheeseburger project can get very . . . beefy. (**Eric:** that’s cheesy.) The following table shows the potential value of investing your cheeseburger savings beginning at age 30 and continuing to do so for 35 years, compounded monthly at different annual (and steady) rates of return. This is also the opportunity cost of eating all those restaurant burgers every week over time instead of cooking them at home. The opportunity cost is of course a lot higher than just the raw cost of all those burgers (as opposed to the cost of all those raw burgers). These calculations assume that all burger and restaurant costs remain the same over time (which they won’t).

If your cheeseburger savings were to earn a 10% return every year, your investment would climb to more than $120,000 after 35 years. Even at an FDIC-insured 1% return, you would end up with more than $16,000. And that’s just for cooking one cheeseburger at home per week every week over time and investing the savings you’d have from not buying that burger at a restaurant. More cooking means more saving, which could lead to more investing and more compounding. (Of course, this comparison only “works” if you were otherwise going to buy that cheeseburger once a week but cooked it at home instead and invested the difference.)

(Value of Investing “Cheeseburger Savings” of $31.85/month at Age 30 for 35 Years at different rates of return, compounded monthly. Figures have been ground-rounded to the nearest dollar.) (**Eric:** I can’t even.)

Suppose you start this cheeseburger cooking at age 25 so that you have 40 years of compounding before you reach age 65:

(Value of Investing “Cheeseburger Savings” of $31.85/month at Age 25 for 40 Years at different rates of return, compounded monthly. Figures have been ground-rounded to the nearest dollar.)

Because of the exponential growth that can be achieved by compounding over longer periods of time, a potential 10% annual return on your cheeseburger savings invested over 40 years could grow to more than $200,000. That’s a lot of cabbage (enough for many side orders of cole slaw) just for cooking one burger per week over time!

So what is the moral of this Angus allegory? Cook your own cheeseburgers every week for 40 years and you’ll be one-fifth of the way towards millionaire-hood? Not exactly. This cheeseburger fable wouldn’t be very “well-done” if that was the take-away (or the take-out, as the case may be). The point of this patty parable is to show that you don’t have to work your “buns” off to save and invest over time. (**Eric:** this whole paragraph is one long dad joke . . . .)

Money can always be spent in different ways. (Maybe that’s why coins and bills have two sides? **Eric:** or that in the real world, a one-dimensional object is impossible.) It’s easy to go on auto-pilot and spend money without realizing how much you are spending and what you may be giving up by not making other financial choices. There will be plenty of times when it will make sense to spend $10 (or more) on a burger (or dishing out your money on other food), and those dining experiences should be enjoyed with relish. (Sorry) But for all those other times, you may be shocked to see how small changes in your day-to-day spending habits combined with a shift in your investment outlook could potentially have a huge effect on your future wallet. Savings add up over time, and invested savings have the potential to “mushroom” into even larger amounts. So grab that skillet and see if you can turn some ground beef savings into a “prime” rate of return.

**Want to start your own “Cheeseburger Challenge?”**

- Think of a few dishes that you like to cook at home.
- Schedule at least one of those meals into your week every week. (You have to actually cook that meal or something else roughly once a week.)
- Figure out the approximate cost savings of cooking this meal at home. (Compare the cost of ordering that at a local restaurant vs. the cost of cooking it yourself.)
- Figure out the monthly savings. (Assuming you cook once a week, take the cost savings for 1 serving and multiply by 52 weeks. Divide that total by 12 for the monthly savings. If you are cooking for more than just yourself, you can, of course, come up with your monthly savings for more servings just by multiplying the costs by the number of people you cook for.)
- Use a compounding calculator (you can use this one
**here**) to figure out how much you’d potentially have at age 65 (just as a measuring point) if you: (1) cook that meal (or a similar dish) once a week (every week until you turn 65) instead of ordering it at a restaurant; AND (2) you invest the savings at an estimated fixed annual return rate.- Input the monthly savings number, the number of years until you reach 65, and an estimated return rate. Set the initial investment amount to $0.

- Enjoy cooking at home! We think you’ll start to want to cook more, regardless of the savings. Take a look at more recipes and their “Bank Rolls” (potential results of investing the savings at different return rates and time periods) at
**Simmering Savings**.

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Please Note: You may notice that the cooking savings shown in the tables in **Switch from This to That and Invest the Difference** are slightly higher than the numbers shown here for the cheeseburger. That’s because a cheeseburger costs less than the average meal used as the example in the other post. The cheeseburger savings figure used here is $7.35/burger (which equals $31.85/month). The estimated cost savings amount used in the other table was $10 per meal (which equals $43.33/month). When you estimate your own cooking savings, you can either use a compounding calculator or use whichever “Invest the Difference” table looks closer to the savings you may achieve from the meals you may be cooking at home.