I had the opportunity to have a colleague who was formerly an executive chef at a few fine establishments, (and some that were not so fine). This trade - which is glamourized on TV and on various cable network channels - is actually quite demanding and low-paying with certain exceptions. At the end of the day, it is very much a part of the retail trade, where cost management is critical.
One rule of thumb is to contain the costs to be roughly 1/3 of the total menu price. This ratio incorporates the fixed and variable costs related to preparing and serving the food, as well as having the facilities covered. The reason that many restaurants go under within a few months of their opening is because they do not hold fast to this ratio.
This rule can be altered if certain costs are covered. For example, in a family business where brother and sister don't need to be paid minimum wage, the labour component can be reduced. Alternatively if the location and facility cost is absorbed, that can work to the restaurant's advantage.
So what this really means is that the $12-15 meal that you get at your favorite pub or restaurant has an intrinsic value of $4-5, with the rest being overhead and service. This ratio is especially true if the restaurant is a busy place, as the food value will be more constant. If you are eating out several times a week, a large percentage of your spending is being diverted.
The essence of thrift is to get the most value for your money. What can you do to get the value of a restaurant (or specialty coffee) without overpaying to fund someone's rent or livelihood.
1. Learn to prepare the food or cuisine yourself:
When seen as an investment, the opportunity to expand your kitchen to have top quality appliances and equipment can increase your enthusiasm to cook and prepare meals (even just to use the fancy gadgets), and will open your palate to new experiences. This will also save time (another precious commodity) as you will no longer have to be kept waiting for your meal.
2. Increase your internal spending at home:
This is the "steak vs. bologna" equation where it is actually less expensive to purchase a mid-tier steak than the cheapest cold cut. Most conventional cuts of beef, pork, or chicken are priced at under $10 per kilogram. This translates to $1 per 100g, which is roughly the price of the lower-end cold cuts like bologna. Wealth is not just an asset count, it is a mentality and experience. Would a wealthy person be more inclined to eat a bologna sandwich or a steak dinner? Taking this logic further, for the same price as the cheapest sandwich at a cafe or take-out place, an individual can prepare a fine sirloin meal at home and bring it on where they can be enjoyed.
3. Have pot luck with your colleagues:
This can have several advantages including team-building, appreciation of diverse cultures, and international dining within a price point. At an average of $4-5 per person, a pot-luck ensemble can cover a wide range of enjoyable dishes with abundant quantities and variations. You can also create your dish to reflect the tastes and preferences of your group (i.e. extra spicy, low fat).
4. Look for deals with places having reduced overhead:
You will get more food for your restaurant dollar when you go to places where there are compromises in location, service, or restaurant overhead. This can range from selecting from set meals or "specials", participating in the unlimited buffets or service, enjoying self-serve or take-out, or even bringing your own beverages which you can enjoy for a "corking fee".
The lesson is that thrift does not necessarily imply sacrifice or abstinence. By making smart decisions and necessary preparations, decisions of thrift could actually lead to a more enjoyable life. If you create the meals and beverages, you control your meals, and improve your cuisine skills. It is less expensive and more satisfying, and it also develops your tastes so that you can properly enjoy your prosperity.
Showing posts with label spending burn thrift track planned unplanned fixed variable dollar cost averaging activity based costing. Show all posts
Showing posts with label spending burn thrift track planned unplanned fixed variable dollar cost averaging activity based costing. Show all posts
Tuesday, April 1, 2008
Sunday, March 30, 2008
Track your Personal "Burn Rate"
In following businesses, one of the criteria for financial health and viability is the "burn rate" relative to income, assets, or capital. If we are expected to manage our personal estates and finances in a businesslike manner, it only makes sense that we should track our spending over time, to identify trends and alarms.
The first step is to segment spending into different categories - as businesses do. Some folks are content with the "shoebox accounting system", but that will not reveal the numbers as readily or accurately as a more methodical approach. As this is not academic, I will use general terms which can be applied or modified for different households or enterprises.
1. Distinguish between planned and unplanned expenses. This is a measure of what spending is done in a premeditated and deliberate manner, as opposed to the spontaneous and impulsive decisions.
2. For planned expenses, separate fixed from variable charges. Fixed charges can include recurring payments for mortgages, debts and charges. This is the metric that many banks and lending agencies review in order to qualify the capacity of an individual to handle a loan. In contrast, variable charges can be seasonal to reflect irregular spikes. Some annual expenses (i.e. tuition costs, automotive license, etc.) can place additional strains on income and savings.
3. Unplanned expenses are made in response or reaction to an event, and can range from minor adjustments to major commitments. For tracking, the expenses can be further classified as predictable (i.e. flat tire requires a replacement at a fixed cost), or extraordinary (i.e. emergency flight to visit a sick parent in a different city).
4. The level of detail should be practical and suitable for decision making. It may be better to cluster expenses under $100 into a general category than to attempt to spend the time reconciling every latte or chocolate bar consumed. Categorizing by cost also indicates common behavior patterns. If each trip to the major big box retailer costs over $200, or a night out at the pub comes to a minimum $100 per visit, it might be a sign of some wasteful spending patterns.
5. Once the burn rate is tracked, it is helpful to review the expenses and determine what can be reduced or eliminated. In order to hit targets for savings and investments, certain existing expenses must be selected for reduction or removal.
6. Pay Yourself First! By introducing the savings plans as part of your burn with a higher priority, it has a higher visibility.
It is easier to control your spending than your income. The process of building wealth through thrift comes from shifting resources from excessive expense towards wealth-building opportunities. Don't burn your fortune down, build it up.
The first step is to segment spending into different categories - as businesses do. Some folks are content with the "shoebox accounting system", but that will not reveal the numbers as readily or accurately as a more methodical approach. As this is not academic, I will use general terms which can be applied or modified for different households or enterprises.
1. Distinguish between planned and unplanned expenses. This is a measure of what spending is done in a premeditated and deliberate manner, as opposed to the spontaneous and impulsive decisions.
2. For planned expenses, separate fixed from variable charges. Fixed charges can include recurring payments for mortgages, debts and charges. This is the metric that many banks and lending agencies review in order to qualify the capacity of an individual to handle a loan. In contrast, variable charges can be seasonal to reflect irregular spikes. Some annual expenses (i.e. tuition costs, automotive license, etc.) can place additional strains on income and savings.
3. Unplanned expenses are made in response or reaction to an event, and can range from minor adjustments to major commitments. For tracking, the expenses can be further classified as predictable (i.e. flat tire requires a replacement at a fixed cost), or extraordinary (i.e. emergency flight to visit a sick parent in a different city).
4. The level of detail should be practical and suitable for decision making. It may be better to cluster expenses under $100 into a general category than to attempt to spend the time reconciling every latte or chocolate bar consumed. Categorizing by cost also indicates common behavior patterns. If each trip to the major big box retailer costs over $200, or a night out at the pub comes to a minimum $100 per visit, it might be a sign of some wasteful spending patterns.
5. Once the burn rate is tracked, it is helpful to review the expenses and determine what can be reduced or eliminated. In order to hit targets for savings and investments, certain existing expenses must be selected for reduction or removal.
6. Pay Yourself First! By introducing the savings plans as part of your burn with a higher priority, it has a higher visibility.
It is easier to control your spending than your income. The process of building wealth through thrift comes from shifting resources from excessive expense towards wealth-building opportunities. Don't burn your fortune down, build it up.
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