The Latte Factor

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As I wrote about about in  Spend Less Than You Earn, one of the keys to getting rich is to take control of your spending. In The Automatic Millionaire, author David Bach explains how the Latte Factor may be holding you back from getting rich. The big idea behind the Latte Factor is that most people don’t really think about how they spend their money – and if they do, it is usually for expensive items rather than the small daily expenses (eg a Latte!).Small daily expenses can add up to a fortune. Don’t believe me? Consider the following illustration:

A Latte a Day = $3.50

A Latte a Day for a Month = $105.00

A Latte a Day for a Year = $1,260.00

A Latte a Day for a Decade = $12,600.00

I love a cup of coffee in the morning, but the above illustration of the Latte Factor is why I brew my own.

I can understand why people might still be hesitant about giving up their Latte as a good cup of coffee is one of the simple joys of life and there is often a social aspect to drinking coffee. The following are some alternate small daily expenses that you may be able to eliminate:

  • Cigarettes – why not quit for the sake of your health?
  • Soft Drink – why not drink water?
  • Candy – why not take a healthy snack to work with you?
  • Newspaper – why not read the news online?
  • Fast food – why not take your lunch to work?
  • Bottled water – why not refill the same bottle from the work watercooler?

By being conscious of the Latte Factor I believe I save about $10 per day in small daily expenses. Importantly, I don’t feel as if I am going without as many of the things I “sacrifice” are not good for me anyway. If you thought the illustration of how $3.50 a day added up was impressive, consider it with $10……