The $50,000 Burrito

Alternate title: Judging Others for Their Purchases Is Good Actually?

Recently I was out at lunch with a coworker, buying a standard, mediocre, fast-casual burrito in the downtown of the mid-size American city where I work. Off-hand, I remarked that I didn’t like making a habit of going out for lunch because of the impact it has on my finances.

“What do you mean? It’s a $12 burrito. We work reasonably well-paying tech jobs. How could that matter?”

I replied that a burrito habit could cost me $50,000 over a decade. He didn’t believe me, so I showed him some quick math:

• One burrito per workday: $15 (including tax and tip)
• 250 workdays per year
• => $3,750 per year, every year
• 4% real rate of return in a US equity index fund (nominal return minus inflation)
• => almost exactly $50,000 per decade, inflation-adjusted

The Tale of Albert and Bill

Despite having already done the mental math, it was kind of shocking to see this result so starkly. Small habits and decisions really add up! I started thinking about two otherwise-identical people making marginally different decisions, to see how their lives differed through time.

Albert and Bill are two friends who just graduated from college. Both got good, well-paying jobs in the same city. Both live alone, both need a car to commute to their office, both have similar interests. But they spend a bit differently:

• Albert buys a new Toyota Corolla, while Bill thinks he might want to haul stuff and wants to show off a bit, so buys a new Ford F-150. Five-year cost of ownership: $38k for the Corolla, $68k for the F-150
• Both rent themselves one-bedroom apartments, but Bill springs for a slightly nicer place: Albert spends $1,300 a month, Bill spends $1,500
• Albert packs his lunch most days, while Bill buys the aforementioned burrito: Albert pays $3 for packed lunch; Bill pays $15
• Albert goes out every Saturday with friends for dinner and drinks; Bill goes out Friday and Saturday to slightly nicer restaurants and orders one more drink each time: Albert pays roughly $50 per week; Bill pays $140

After ten years of these lifestyles, Albert’s savings are worth a quarter of a million dollars more than Bill’s. With just this difference, Albert can now buy, in cash, the median home in Pennsylvania, or put a comfortable down-payment on a reasonable home in even the priciest US metro areas.

It’s important to remember that these guys barely lived their 20s any differently! They both had new cars! They both had one-bedroom apartments! They both went out frequently with their friends! The friends they went out with every weekend probably didn’t notice any big difference in their spending habits. But they turn 32 and Bill is shocked to see his buddy Albert comfortably buying a house while his own finances don’t allow him to do so.

Since doing this exercise, I’ve started mentally computing the ten-year cost of things a lot more when making financial decisions. It’s actually pretty easy to do — basically just figure out the annual cost and multiply by fifteen — and puts recurring purchases into equivalent terms. If I take ten flights a year and spring for the $60 “economy plus” upgrade each time, that’s about $10,000 over a decade. If I average three drinks per week at a bar and I switch from $8 beers to $12 cocktails, that will cost me $9,000 over a decade.

Would I rather be someone who always flies economy plus, or someone who drinks tastier cocktails? There’s no clear answer, but putting them into like terms at least makes it comparable. That pickup truck is costing the equivalent of $500 extra in rent; buying the fancy bread at the supermarket costs 1/6th as much as springing for cocktails over beers, that Hulu and Netflix subscription combine to one extra weekend trip per year… and the list goes on.

I recommend this exercise to everybody — the examples I’ve given mostly relate to someone with relatively high income choosing between basic luxury options, but awareness of the true cost of various habits is, if anything, more crucial for people with lower incomes. And for those with higher incomes who assume budgeting is unnecessary, the unfortunate reality is that anybody can end up living paycheck-to-paycheck if they are not mindful of their spending habits. There are billions of dollars spent every year to convince the high-income to part with their money: the hedonic treadmill has no top speed.

In prior years, I would have thought of this as a personal finance matter and nothing else. But as recent news has demonstrated, popular perceptions of the economy can have real political implications.

Bill probably feels quite a bit worse about the economy than Albert does: he’s working hard at a good job, not splashing out money on silly things, yet his savings are growing anemically and he can’t imagine being able to afford a house. He can’t put his finger on it, but something feels wrong. If someone comes along and gives him a scapegoat for his economic woes he’ll probably believe them.

So, unfortunately, Bill’s poor finances cannot just be handwaved away as “he made his own bed and now he must lie in it”: it’s a societal problem requiring a societal solution. As I said in my post about marketing and malaise, we need universal financial education and perhaps clearer pricing transparency — e.g., requiring standardized pricing terms for subscriptions and buy-now-pay-later schemes so companies don’t use financial gymnastics like teaser rates to lower the “monthly” sticker price.

Another solution I believe is possible but cannot see happening any time soon is a technological one: especially with the rise of LLMs it would be technically feasible for an app with access to Bill’s finances to give him just the kind of clear, punchy summary he needs: “Bill, you are hemorrhaging money on drinks, lunches, and more car than you need. If you downsize them in <these ways> you will be able to save <this much> more per year”. Unfortunately, a cutting-edge app like this whose job is to make you spend less money is unlikely to find the investment and monetization strategy it would need to pay for its substantial development and operational costs.

I would love other ideas of how to approach and mitigate this problem, both on the individual and societal level! These have just been my personal musings, but more conversation is always appreciated.