A cup of coffee here. Take out there. A new pair of shoes. A new pair of jeans. Another streaming service. We all buy things and many of us don’t realize just how much money these ‘little’ things add up to. All these ‘little’ purchases can actually become big costs and an even bigger hindrance to saving money.
What is the “Latte Factor”?
The term “Latte Factor” was coined over 20 years ago by author and personal finance expert David Bach. In Smart Couples Finish Rich, Bach tells a story about how he stumbled upon the “Latte Factor” when questioned by a couple attending one of his seminars. They asked how they could save money since they were living paycheck to paycheck. The couple just couldn’t believe they could save $5-$10 per day to put towards savings and retirement. After asking them questions and digging into their daily routines, Bach found that they spent a lot of money (over $80) every day on food for their morning coffee, breakfast, snacks, lunch, and dinner. By spending like that five days a week for 50 weeks a year (assuming two weeks of vacation), they spent over $20,000 per year at coffee shops, snack bars, and restaurants. That’s before groceries and didn’t include lunch costs for their children. On top of all of that, this was in the 1990s, so you can imagine what the same type of lifestyle could cost in 2021. My guess would be nearly double, if not more. Even though it is called the “Latte Factor”, it does not just apply to coffee. Ultimately, the “Latte Factor” is way to identify excess spending that is preventing you from planning and saving for your future. Applying the “Latte Factor” is very straight forward. First, track your spending. Second, find out exactly what you are spending your money on and how much. Lastly, see what small expenses you can cut back on to increase savings or pay off debt.
Latte Factor Critics
Despite the success that David Bach had with the “Latte Factor” helping others and writing a fiction story titled The Latte Factor (which I highly recommend),there are critics of the “Latte Factor” who joke about how cutting out lattes can’t make you rich. Personally, I think a lot of the negativity towards the “Latte Factor” is made with the primary attempt at garnering attention. If you actually step back and think about the “Latte Factor”, it is really a concept used to draw people’s attention to how they are spending their money. If hearing and learning about the “Latte Factor” opens your eyes to your spending habits, then it can absolutely be a huge step forward in improving your personal finances.
Wrapping Up
Will the “Latte Factor” work for everyone? No, it won’t. Personal finance is personal, and we are all different. If you don’t have an emergency fund, are bogged down with debt, and aren’t saving for retirement, well, you should at least give the “Latte Factor” a chance. If you’re consistently saving towards an emergency fund, retirement, or financial goals, you may not need the “Latte Factor,” but you may still be able to apply the “Latte Factor”, save more, and reach your financial goals faster.
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