By now, we’ve all been inundated with David Bach’s “Latte Factor.” Some are proponents of it, others think it’s hogwash. By some accounts, if your “latte factor” is actually, well, latte’s, depending on how often you swing by your local Starbucks or what not, you may end up giving them over $1,800 of your hard-earned money a year. That, invested over the course of thirty years would have made you a hefty sum well into the six figures (different expert’s calculations yield different results).
But is focusing on the proverbial “latte factor” the most effective way for you to cut expenses and grow your retirement fund? Even though I discussed the merits of tracking your latte factors here, especially if you are just learning the basics of money management, I’m not entirely sure that it is. That being said, I do think that it’s a good idea to keep an eye on your latte factors. I know that if I’m not careful, my “latte factors” can get expensive. Even though I do track all my expenses and use budgeting software, I can sometimes lose a bit of self-control, especially when I’m stressed, tired and it’s the end of a long work day.
Depending on what you’re spending, you can potentially save a nice chunk of change every year. About ten years ago, I was in a really bad spot financially. So, yes having a ton of small expenses was no good when I didn’t even have $500 in the bank for emergencies. But is that change enough to actually change your life? Don’t get me wrong, $1800 a year is nothing to sneeze at, but you may gain more traction cutting back larger expenses.
The irony is that larger expenses are often the toughest to cut back on quickly. Reducing housing and car expenses can yield big bucks, but it takes time to make the arrangements to do that. So what did I do? Caveat: Though I’ve done some things right, I’ve also made some poor financial decisions in the past and apparently I’m still making them.
Thing that I did right: A few years ago, I found cheaper housing. I could have really cut back on housing expenses, but I absolutely love the town I live in. I’m currently in contract with my current lease, but plan to move to even cheaper digs when my lease ends.
Thing that I did wrong: I went and leased my car since I didn’t have enough saved to purchase one when my old car finally died. Bad, bad move. I discussed a bit of my foolishness here.
Other really bad thing that I did, I got into debt (half of it being consumer debt). This IS the biggest money drain out there. For those who are in debt, getting out of debt is the best way to begin super-charging your savings. Once I’m out of debt, I can use the money that was going towards my debt payments, along with the money saved by having cheaper housing and car costs, to really supercharge my countdown to freedom. I believe that once that money is available, a little indulgence in the “latte factors” won’t matter.
Do you think that “latte factors” are a significant inhibitor to saving money?