The Latte Factor: Having More Money without Working More!

As I was trying to decide what should be the first post in this series, it suddenly became clear that helping people have more money instantly is important.  This may sound impossible, but it truly is possible if you adjust your thinking and your spending habits ever so slightly.  The idea behind the latte factor is that for a lot of people their financial future weighs on not how much money they make, but on how much they spend.  Think about yourself for a minute.  The last time you got a raise at work, did you increase your savings or spend a little extra or live a little larger. If you are one of the people that saved more than kudos to you. If you were in the other group, than you joined the vast majority of people.  You will often hear people say, “if only I could make more money…”.

While increasing your income is one way to get rich, another way is to decrease how much you spend and therefore save more.  While many of us are aware of our finances and keep track of what we spend, we don’t give too much thought to the little things we spend money on.  This is where the Latte Factor comes into effect.  In David Bach’s book The Automatic Millionaire, he discusses the idea of increasing our awareness of all the little things that we spend money on and turning that money into savings and eventually wealth.   The fact is most of us spend small amounts of money throughout our day and never really think about what it adds up to.  Do you ever really think about the $5 you spend on your morning latte and muffin?  Probably not. We just think of it as a treat that we deserve for working hard each day. Now let me be fair, I do not believe that we should not treat ourselves for working hard, but all those “treats” can really add up.

For the purposes of this article, I am not going to get into all the numbers about how much you can save, but let’s take a quick look at the numbers behind the idea of the latte factor.  If instead of spending that $5 a day on coffee and a muffin on your way to work (5 days a week) you could save $25 a week, $100 a month or about $1200 a year.  If you buy that morning coffee everyday (that’s what I used to do) the numbers are more like $35 a week, $140 a month or about $1700 a year.  This may not sound like too much, but if you put this money into a retirement account that gets roughly a ten percent annual return, in about 40 years that $5 a day would equal well over 1 million dollars!!! Yup, so now that insignificant money spent on your morning coffee is not so insignificant after all.

The thing that I like most about this idea is that it shows that you really can have more money without actually making more money.  Before my first child was born, I was a victim of the latte factor. Every morning on my way to work, I would drive through my local Dunkin Donuts drive through and get a delicious large coffee. Then a couple years later, I started a second job and found that these really long days needed an additional coffee each afternoon.  Some days I would even grab a muffin or a bagel to take with me to my second job as a quick dinner.  That $6-10 a day I was spending began to add up really quickly.  Here I was busting my butt to save money and I was spending anywhere from $180-$300 a month on coffee and bagels.  OMG, what was I thinking?  Now don’t get me wrong, people that know me know that coffee is like my lifeline.  I start every day with it and often end days with it.  I am not suggesting that people deprive themselves of the things they love. I actually probably drink more coffee now than I did then, but I brew it at home and take it with me to work. I also take my meals to work which can save a fortune.  I am suggesting that you take a look at where the little amounts of money are going in your life and decide is this the best use of my money. Will I be glad in 40 years that I had coffee house coffee each morning instead of an additional million dollars in my retirement plan.

This idea goes far beyond coffee. Take a look at your life and think about where all that money goes. How much could you save if you skipped going out to eat once or twice a month.  Could you cut out one or two new outfits or a new pair of shoes each month? If you did this would you really be depriving yourself or is that just an illusion.  My guess is that having more money in your pocket would bring you more piece of mind than having new shoes, a fancy dinner or at the very least, a latte!

The book The Automatic Millionaire by David Bach is one that I truly recommend. I have read it several times and learned something new each time. It is a quick and easy read that will truly change the way you think about spending and saving your money.

Instead of working for your money, let your money work for you!

Have you every heard of the latte factor before?  Have you ever tried to cut out one of your little indulgences to save a few bucks?  I would love to hear about your experiences.


4 Responses so far »

  1. 1

    Excellent info here – while I’m not a coffee drinker, I do find myself picking up a diet Coke & bag of M&Ms far too often at Wawa. Sticking to 2 liters of soda at home (or even better – water!) will definitely save money!

    • 2

      Kelly Y. said,

      Yes it is easy to spend a few dollars here and there without thinking about it. a little planning can go a long way. This post was not intended to teach anything just to increase people’s awareness of their spending habits. Glad you liked it!

  2. 3

    This is SOOOOOOO true. When my son was born, I really wanted to work half time so I could spend more time with him. So I took a close look at my spending habits and with a few adjustments, was able to live on half my income for 4 years very comfortably. Great post. Thanks for sharing!

    • 4

      Kelly Y. said,

      I had the same experience. When my daughter was born I went from having a full-time job and a part-time job to having only a part-time job. Making some adjustments has enabled me to spend half the week with my kids and I have more money in my savings now than I did before they were born. It truly is doable! Thanks for reading Beth!

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