- Personal Finance»
- Understanding Finance
What is the Latte Factor and is it Hurting Your Finances?
Years ago, David Bach coined the term "latte factor". It has become very popular among financial experts and could very well be the reason you are not getting ahead financially. The latte factor is basically when you perpetually spend small amounts of money that add up to large amounts of money over the course of a year. A latte is about $3.50. If you stop at Starbucks and purchase one every weekday you are spending $17.50 a week, or about $70 a month or more shockingly $910 each year.
Many people think that they don't have any extra money to pay down their debt, afford a vacation, save for retirement or set money aside to pay for their children's education. But if the latte factor is happening in your life, the chances are good that you really do have the money - you just have to make different choices in your life. Here are some other examples of how small amounts of money add up very quickly.
- Throwing a magazine into your cart in the checkout line each week is going to cost you about $4 a pop or $208 a year. Why not purchase a magazine subscription or two and save the remaining $150. A bag of chips is about the same price. Cut the chips from your life and you can save another $208.
- Eating lunch out when you are at work can be very pricey. When I eat lunch out it costs about $7-8 for a decent meal, usually with just water. Eating out every weekday is $40 a week or $2080 a year. Why not cut back to once a week and pocket almost $2000 a year.
- Your weekly manicure is probably running you $30-40 a visit. That adds up to another $2080 a year. I can certainly paint my nails myself for much cheaper.
These four examples I have just shown you add up to over $5000 each year. If you feel as if you can't get ahead, take a look at your life and try to determine your latte factor. Just about everyone has one it seems. It is so easy to let small amounts of money slip through our fingers.
I am not saying that you are not allowed to every purchase another bag of chips. Maybe that $4 each week is well worth it to you. I am just asking you to take a look at your life and the choices you make with your money. Really think about whether you need that latte each day or if it has just become a habit that you do without thinking. Maybe you decide that you will stop buying a newspaper each day, but continue to pick up your weekly magazine at the grocery store. It is up to you how you spend your money. Just be conscious about what you are spending it on and try to make better decisions that meet your ultimate goals. Make sure that your latte factor isn't hurting your finances.