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How to get rid of your personal “Latte Factor”: Annualize your potential savings.
I guess you know what “latte factor” term means. Ok.
It refers to the spending that all of us tend to do almost every day without even thinking about it on some particular small items.
We definitely can go without it, but the habit is so instilled into us, that it keeps us going for 4.95 morning latte day after day after day. We don’t even think that such a habit can possibly ruin our financial future. What is that to think about – it is just a cup of coffee, right? Not really.
To really see what the cup of coffee costs you one need to annualize the spending and see the potential saving he/she can do.
In order to see the long term complications with buying morning cup of coffee 5 days a week at $4.95 one need to annualize his current spending. In this example you are spending $1287.The money which, if put aside, could buy you a vacation in two years of saving, or pay college for your newborn, if you and your spouse has the same spending habits that can be eliminated.
Here is another revelation, it not necessarily needs to be morning coffee that you are spending on, it can be going to a “happy hour” too often, let’s say 3 times a week. It might cost you just $15, but if you annualize this expense, it becomes a hefty $2340 in spending per years. The same can be with you buying work lunch every day. This one is huge. Think about it. If you are buying lunch 5 days a week for an average of $8, you are spending $2080 a year, and if you spouse is doing it as well, you are $4160 shorter annually, money that you could have put in your 401K or IRA for comfy retirement afterwards.
The key here is not trying to abolish all such extravaganzas, but to think which one of your latte factors you can eliminate or at least reduce. If you cannot live without your morning fancy coffee, try to buy it 2 times a week instead of 5, or as an alternative eliminate or reduce your other latter factor like buying a CD every week.
It doesn’t matter which latte factor you are willing to quit spending money on, you will win in the long run!