Your Financial Latte Factor

July 12, 2009 1 Comment

Enter your email address to subscribe to my blog:

Delivered by FeedBurner

A LATTE A DAY KEEPS RETIREMENT AWAY!

What is The Latte Factor?

The Latte Factor is basically an investment strategy that is derived from taking the money you would normally spend on coffee, snacks and other niceties, and saving it instead. It grows exponentially over time.

For example, let’s say that you buy a latte every day, and it costs $3.50. Look at the following illustration.

A Latte a Day = $3.50
A Latte a Day for a Month = $105.00
A Latte a Day for a Year = $1,260.00
A Latte a Day for a Decade = $12,600.00

Really adds up, doesn’t it? It can be even worse. For a cigarette smoker, if you smoke a pack of cigarettes every day at $7.00 a pack, that would cost you $2,520 over a year and $25,200 over a decade!!!

We’re not picking on coffee drinkers or smokers here. Everybody has their own Latte Factor. There is an exercise for you at the end of this newsletter to help you figure out what your Latte Factor is, but first…

…let’s see the power of the latte factor.

$5.00 (average cost of a latte and muffin) X 7 days = $35/week = approx. $150/month. If you invested $150 a month and earned 10% annual return, you’d wind up with:
1 year = $1,885
2 years = $3,967
5 years = $11,616
10 years = $30,727
15 years = $62,171
30 years = $339,073
40 years = $948,611

At $10 a day (or $300/month) at 10% annual return, you would have $1,897,224 at the end of 40 years.

At $20 a day (or $600/month) at 10% annual return, you would have $3,794,448 at the end of 40 years!!!

So, how do you figure out what your Latte Factor is? Well, you can guesstimate it, or you can catalog your actual spending and know it for sure. Knowing it for sure is probably better, so take a look at the exercise below.

Exercise: Track all, and I mean ALL of your expenses for one day. Write down every penny you spend for the entire day. I recommend three columns on your paper. “What I Bought, What I Spent, Wasted Money?” (Put a check in that column if the answer is yes). At the end of the day, figure out your Latte Factor Total (everything that was wasted money).

Then, you do the Latte Factor math.
My Latte Factor for one day = ______________
My Latte Factor for one month = _____________ (Latte Factor X 30)
My Latte Factor for one year = ______________ (Latte Factor X 365)
My Latte Factor for a decade = ______________ (Latte Factor X 3,650)

If I invested my latte factor for:
10 years it would be worth = _________________
20 years it would be worth = _________________
30 years it would be worth = _________________
40 years it would be worth = _________________

To calculate the numbers above go to www.finishrich.com. Click on the “calculators” and then click on “Apply the Latte Factor.”

This really is a great way to discover where your money is going and what a difference it can make in your financial future by channeling it into a savings plan instead of on some of those unnecessary things that probably aren’t good for us anyway.

*For more information on The Latte Factor and achieving wealth, read the book “The Automatic Millionaire” by David Bach.

Until next time, I leave this quote with you:

“The safest way to double your money is to fold it over and put it in your pocket.” — Kin Hubbard

Ok, for those of you brave enough, share what your “Latte Factor for a decade” is. Share your comments below.

If you enjoyed this post, make sure you subscribe to my RSS feed!

No related posts.

Tags: automatic millionaire, Finances, latte factor, money, saving, spending, wealthFinances