The Latte Factor
No, this is not another coffee post, though I’m sure there will be more (If you are missing them, this is one of my favorites). As you can probably guess from some of the blog posts in the last week, my thoughts are focused on personal finance. I have been listening to an audio book – Start Late, Finish Rich by David Bach. By the way, at the time of writing, if you go to his website and sign up for his newsletter, you can receive a free download of the book which is great, because though it is a good listen, the narrator lists all the references that David provides. While this makes his book a great resource, it is hard to listen to – all those www’s.
This is not meant to be an article promoting David Bach. I am very impressed by his book and, since I am listening in the car, I am frustrated that I can’t make notes. But I want to share one particular chapter that he wrote because I found myself changing my behavioral patterns almost subconsciously. If I write anything here that does not reflect what David wrote, it is all my fault (feel free to correct me, Bach followers). I am not referring to his book as I write.
People often say how they wish they could save, how they know they need to save more, and then they come up with a number of reasons why it isn’t happening and why they’ll start tomorrow. Always tomorrow.
The Latte Factor is finding something that you do regularly, even daily, that can be a sacrifice in order to start savings, something that you can go without. It could be the upgrades to your basic gym membership that sounded so good at the time. Perhaps you don’t need all those cable channels or the Internet bundle on your phone (though many smart phones now seem to make it mandatory). But I want to take Mr. Bach’s example of coffee.
Apparently, there are many people who, on their way to work, purchase a latte or cappuccino or other such espresso drink every day. Let us assume it is a latte and that it costs $4. That is $20 a week (5 days x $4). This comes to $1,040 a year, not including weekends. If you are a writer, you are certainly in the coffee-house on the weekend. Start compounding this (in hopefully a higher interest yielding climate) and you are beginning to build a nest egg.
For the last two weeks, every time I have ‘saved’ in this way, I have put the money aside. I mean literally. It is going into a purse at home and I plan to save it as it mounts up. The morning java is a good example (even if you purchase the $2 brewed coffee, there is still a significant saving and you still get your caffeine fix). One thing that fascinates me is the American propensity everyday to buy lunch during a work day. Why not bring a brown bag lunch? No time to prepare it in the morning is often offered as an excuse. So I thought (or most likely read somewhere), why not make an extra portion of the dinner you made the night before? If you spend $7.50 on lunch (and this is frugal if you stay away from McFastfood – which while you save, may well cost you in health bills later on), then: $7.50 x 5 days a week x 52 weeks = $1,950.
David Bach actually provides you with a calculator to do your own mathematics. He calls it his Latte Factor Calculator.
Finally, let me paraphrase David. Money doesn’t make you happy, but a lack of it can make you stressed. Is this the way you want to live out your golden years? Which brings me back to the blog post I wrote the other day and the question: why isn’t this being taught in schools?
Alon Shalev is the author of The Accidental Activist (now available on Kindle) and A Gardener’s Tale. He is the Executive Director of the San Francisco Hillel Foundation, a non-profit that provides spiritual and social justice opportunities to Jewish students in the Bay Area. More on Alon Shalev at http://www.alonshalev.com/and on Twitter (#alonshalevsf).