Being a chef I know first hand how easy it is to overspend on food and as a father of 4 teenagers I know how hard it is to keep everyone happy while still staying on budget. I need to make it clear that even though I am a classically trained chef and do it professionally for a living, it is actually my beautiful wife who does most of the cooking for our family, this is comparable to the landscaper who has to worst looking yard in the neighborhood because after doing something for 8-12 hours a day, the last thing you want to do is come home and do it again. I am a big believer that we should all treat our homes like a business and constantly monitor our income and expenses and look for ways to increase or decrease either. In food service establishments we refer to the major expenses as Prime Cost – prime cost are Food, Labor, and Alcohol. We refer to them as prime cost because they are the primary non-fixed cost of running your business and if you control them you can significantly increase your profit margins. The long standing industry average for food cost is 32%, meaning that 32 cents of every dollar earned went to purchasing food. Obviously just like our households every business is different and will have a different food cost percentage goal, think fast food versus fine dining. Often times as a consultant I spend long hours breaking down individual menu items food cost to see where we can save money or if we need to charge more, some items will have a higher food cost by than others, like a burger compared to a steak. It is interesting to note that even though the fast food restaurant may have a lower food cost percentage the steak house may actually make more profit per plate sold, think a burger that cost $1.00 to make and is sold for $3.25 versus a steak that cost $10 to make but sells for $24.99, the steak may have a higher food cost as a percentage but you are putting $14.99 in your pocket each time you sell one versus $2.25 per burger sold, now obviously the fast food restaurant probably has a much higher volume than the fine dining restaurant so their money is made through sheer volume.
Now how does all of this relate to our everyday household food budgets? Well to start with the first thing a good restaurant owner would do is set a budget for food purchases based off of expected sales for a certain period, this would be the same for us and each household would be different based off of the number of people living in the house and the income being earned in the home. Since we don’t sell the food we purchase to anyone and only produce it for our own consumption we need to reverse the food cost equation to represent food purchases as a percentage of our personal or household income. So someone earning $45,000 a year who wanted to set a food spend budget of 15% of income, should plan to spend $6,750 a year. Now since a year is a long time to wait to see if you are on track or not, we need to break that down into smaller periods to help us track our expenditures a little closer. Let’s say monthly, so $6,750 per year would give you $562.50 to spend on food that would need to last at least 30 days. Here is where we get back to the point that each household just like restaurants are individual entities and need to be treated as so. A household of one is different than a household of four, the household of one will only need to cover their own consumption so will obviously spend less money overall than the family but because most items aren’t sold in single servings the single person will most likely spend a larger percentage per person on food each month. The family of four will likely spend less per person and depending on whether it’s a single or double income household it may have a much larger food cost percentage of income but because the food can be prepared in larger quantities and each item needed will be stretched across a wider use, they will probably have a cheaper per person cost overall.
Now all of this is great but how do we save money? Well now that you have a budget to stick to and a period to spend that money in, we can now plan out four weeks worth of meals with our budget in mind. The first week of the period will have a much higher cost as we will need to purchase items that we don’t currently have but that will last for not only this period but most likely several months, things like salt, pepper, oil, seasonings, dressings, condiments, etc… Next we need to purchase the actual food to make the dishes on our menu, the most highly perishable and in most cases the biggest waste of money in homes is produce, therefore produce should be purchased as close to the planned day of use as possible and rotated appropriately. Next the more expensive items like meat and dairy should be purchased with an eye on quality and value. Once the first week’s food is purchased we can see how realistic our budget is and how much we have left to spend for the remaining weeks in the period, we will also see if our forecast for consumption amounts are correct, are we eating more or less than planned. Once all of this is figured out we can now plan around any life events such a birthday parties, anniversaries, etc.. and allocate extra money to those weeks. One of the most important things going forward is to take a weekly inventory of the items you have left over form week one, we do this first to make sure we don’t purchase these items again unnecessarily and to see if maybe we need to make some slight adjustment to our upcoming week’s menu to utilize leftovers. I can not stress this enough, controlling loss of produce from spoilage, honing in on production amounts, and taking good inventories of what we have on our shelves will save a family thousands of dollars each year alone. Once this is perfected then additional savings will be found in learning to cook with less desirable cuts of meat, to greatly reduce the overall cost of a dish and looking for good sales on staple items.
So how do you forecast how much food to make and how much food to buy, it’s very easy. Let’s look at the family of four. We have 4 people who will eat 6 ounces of meat and 3 ounces of each side, so 4 x 6/16 =1.5 pounds of meat needed. Easy right, well wait anytime you cook something you have what I call production waste which is basically the loss of water and or fat which causes the end product to weigh less than it started out at. so let’s say we will lose 10% of the weight during cooking, so (4 x 6)/16 x 0.10 = 0.15 pounds or 2.4 ounces, in this example we would need to add 10% to our original amount needed to compensate for the lost weight during cooking. With the sides this isn’t really an issue and with items such as rice or pasta they will actually multiply both weight and volume during cooking by as much as three times the original amount. If you can control your protein cost also known as “Center of the Plate Cost” your sides will not add much to the overall cost of the plate.
So to sum it up, make a budget, plan menus around that budget, figure out amount of food needed to produce meals, purchase food, and record leftovers or shortages to help better forecast for next week. Keep track of expenditures from week to week to see if you are running a surplus or deficit of funds in the food budget to make sure we don’t exceed our budget in the last week of the month. All of will add up to massive savings that can be used to fund a Roth IRA or even a 529 account for a child’s college tuition, saving $3,000 or more per year would go a long way to covering your children’s education cost or towards your retirement goals. Just as we discussed a restaurants PRIME cost of food, labor, and alcohol, if you can stay away form debt and control your housing, food, and transportation cost you will be well on your way to financial success.
Thanks for reading.
CHEF on FIRE