Going to a restaurant is literally just paying someone to cook for you and do your dishes. Paying someone to do something for you is, by definition, luxury.


I will never tell you how you should spend you hard-earned money. This will always be a judgement-free zone.

However, I will call you out when you are being intellectually dishonest.

If you tell me that you haven’t made as much financial progress as you would like, I will try to empathize with you. But, if the next thing you tell me is that you are choosing luxury over retiring a millionaire, I’m going to call you intellectually dishonest.

There is nothing wrong with eating in a restaurant. I do it. You do it. Your neighbors do it. I bet your parents do it. Everyone does it. I don’t even discourage it… as long as you are honest with yourself about what you are doing.

You can use the Undetailed Budget and the Envelope system to take control of your restaurant spending. With those two tools, you can prioritize restaurants where they should be: behind your other financial goals.


All Restaurants are Luxuries

Food is a necessity.
Paying someone to cook food for you is a luxury.

In the age of YouTube how-to videos and online recipes, you can easily learn how to make just about any dish you could order at any of your favorite restaurants. Cooking for yourself is harder. Having someone else cook for you is more expensive.

And, that’s okay.

But, it is important not to fool yourself into thinking that eating in a restaurant is a necessity. It is a choice. And, as I covered in an article about Conscious Spending, there is nothing inherently wrong with that choice, as long as you are honest with yourself about the choices you are making.


Dining Out Costs More Than You Think

The US Bureau of Labor Statistics studies how consumers spend their money. According to the most recent data (2018), the average US household with school-age children spends $5,400 per year on food away from home and another $600 on “alcoholic beverages” (they don’t separate alcohol in bars from alcohol consumed at home).

That puts the total around $6,000 per year that we’re paying for someone to cook for us and do our dishes.

Amazingly, $6,000 per year is exactly the maximum annual Roth IRA contribution for most people.


Restaurants are Costing You Millions of Dollars

Being in control of your own spending is incredibly important. If you want to spend $6,000 per year dining out, that’s 100% awesome. As long as you know the true cost.

In a previous article I shared one of my most favorite financial tools: the Roth IRA.

In that article, I explained that contributing the maximum to a Roth IRA from age 30 to 65 will have added a little over $200,000 of your own money to the account. And, if that money is invested with a reasonable 8% annual rate of return, the account will have grown to about $1,200,000 by age 65.

And, all of that can be done by saving $6,000 per year.

Or, you can be normal and go out to eat.

You have the choice. You can spend $500 per month on the luxury of having someone else cook and clean for you, or you can use it to build a $1.2 million nest egg. It’s up to you.

Again, this is a judgement-free zone. Eat at restaurants if you want! As long as you know what you are doing. If you have made the financial progress you want to make, then go! Eat like a king!


How to Be Accountable

It doesn’t make sense to try and spend $0 at restaurants. That would be setting a goal that is designed to fail, which doesn’t motivate anyone.

So, how can you become accountable and make sure that the amount you spend on dining out is not more than you want? Two ways: the Undetailed Budget, and the Envelope System.

The Undetailed Budget

One of my all-time favorite financial tools is the Undetailed Budget. No one likes making a detailed budget. They can get super complicated and have too many categories. Instead, start with just one equation that has four parts.

Income – Recurring Expenses = Personal Expenses + Savings

The first step is to understand your income. Determine your inbound cash from all sources.

Then, subtract off all of your Recurring Expenses. This includes taxes, rent/mortgage, utilities, subscriptions, etc. Basically, this is all of the money that will leave even if you don’t buy a thing this month.

That leaves you with your current Discretionary Income. This is money that you have direct control over every month. And, you only have two options: you can spend or save this money.

Now that you have a rough idea of your discretionary income, you can make an informed decision about how much of that you want to spend on dining out.


Short Term Planning

For most of us, housing and transportation make up the bulk of our Recurring Expenses. And, housing and transportation costs are generally not very flexible in the short term. You can’t just decide to lower your rent next month.

So, in the short-term you have much more control over Personal Spending.

Let’s say you’re average. In the US that means that you make $5k per month. $1k is held back for taxes & insurance. $2,500 is housing, transportation, debt payments, utilities, and other recurring expenses. That leaves $1,500 for personal spending and saving.

Spending $500 of that on dining out will pretty much guarantee that you live paycheck-to-paycheck and retire with no nest egg.

But, that doesn’t mean you can’t dine out! It just means you need to decide how much of that $1,500 you want to spend on the luxury of having someone cook for you. It also gives you the opportunity to decide, in advance, that putting money aside for retirement is more important than going to a restaurant.


The Envelope System

My favorite solution is to use the Envelope System. Every month, put the amount you are willing to spend on dining out in an envelope, in cash.

When you go out to eat, use that cash for every single transaction. Use it to pay for parking, use it for the meal, use it for the tip… everything. Then, as the envelope gets lighter and lighter throughout the month, you can decide if dining out is still in the cards.

The envelope system is a sure-fire way to keep you from accidentally over-shooting your own budget. You get to decide how much goes into the envelope, and you can physically see your progress.


Long Term Planning

Most families are not going to be able to cut $500 from their Undetailed Budget by just cutting back on Personal Spending. That means that you probably can’t fully fund a Roth IRA by just ‘cutting back’. The envelope system will help you become more intentional about your restaurant spending, but it is a small, short-term solution to a large, long-term issue.

For most Americans, the bigger issue is our Recurring Expenses. As I discussed in an earlier article about shifting your goals from making payments to making progress: if you have good credit, lenders will let you borrow so much money that half of your total income is eaten up by Transportation and Housing.

That means, in the US the average family of four makes $5,000 per month and has $2,500 in payments. Taxes are an additional $1,000, which means there is almost no room in the Undetailed Budget for Personal Spending and Saving.

That’s why I recommend the two rules of thumb to help you win with money:


Housing Expense Rule: 20 / 3 / 15

When buying a house, you should put at least 20% down. The purchase price should be no more than 3-times your current annual gross pay. And, the payments should be no more than 15% of your monthly gross pay.

Transportation Expense Rule: 20 / 4 / 10

When buying a car, you should put at least 20% down. The loan should be for no more than 4 years. And, the payments should be no more than 10% of your monthly gross pay.


With these two rules, you force your Housing and Transportation expenses to less than 25% of your gross monthly pay. For the average US household, that means spending $1,250 on housing and transportation, instead of $2,500.

I know that you likely can’t just change your Rent or Mortgage tomorrow. If you have a car loan, you can’t just make it disappear overnight. But, over time, you can make efforts to bring housing and transportation costs down.

Then, by spending much less on Recurring Expenses, you can prioritize! You can add $500 a month to your Roth IRA, and you can even add more to your Restaurant envelope!

That’s right, I just recommended spending more at restaurants! It really is okay. Spend as much as you want on whatever you want! It’s your money.

Just make sure that you are achieving your financial priorities first. Make sure that you are making progress toward your goals before you spend any of your hard-earned money on luxuries.


Final Thoughts

I try very hard not to let my articles become judgmental. Personal finance is hard. Having someone preach at you about how you are doing it wrong does not help.

It is “personal” finance, that means your choices are your own, and therefore I cannot tell you that you’ve “done it wrong.”

So, I hope that this article hasn’t come across as judgmental about eating in restaurants. That’s not my intention.

Instead, I only hope that this article has made you assess whether the way you invest your hard-earned dollars in your own lifestyle are giving you the best life-time enjoyment.

When I have helped people start tracking their finances for the first time, they are almost universally surprised to find out just how much dining out drains from their bank accounts. So, to avoid falling into the same trap that nearly everyone else has fallen into, I suggest a few tools that help you make sure that you have a solid handle on how much you are spending on the things that bring you joy.

By using the Undetailed Budget and the Envelope System, I have personally seen people radically transform their own financial situation in a matter of weeks. These two tools can help you take control of your finances and break the paycheck-to-paycheck cycle that plagues so many of us.

The Undetailed Budget can help you uncover short-term and long-term issues in your financial picture. You can get small wins immediately by being more intentional with your Personal Spending. But, the big wins come over time, by reining in your Housing and Transportation expenses.

Then, when you have your financial situation fully under control and you are achieving the goals you have set for yourself, you can go back and add more to your Restaurant Envelope. Because, you deserve it!


I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

Join the conversation

This site uses Akismet to reduce spam. Learn how your comment data is processed.