How much can you save to invest?
For many, no day is complete without a trip to the neighborhood coffee shop. Many of us have been known to enjoy our triple nonfat caramel lattes, double espressos or half caffeinated mochas – whether we are shuttling our kids from school to the little league game, congregating with other parents to organize PTA functions or working on our company’s marketing plan.
But while the motivation for seeking out our daily cup of Joe varies, this daily ritual can come at a high price. What seems like a simple, inexpensive pleasure could add up to significant cash that goes nowhere except down the drain.
According to financial expert and New York Times Best Selling author, David Bach, the Latte Factor includes those unnecessary “little expenditures” that all of us find ourselves wasting money on every day. Bach says these little expenditures can add up to a lot of money over time, which we can invest elsewhere.
He maintains that the sooner you figure out your Latte Factor, the sooner you can start eliminating it. You’ll then be able to save more money, redirect it to savings and investments and get into a much stronger financial position. Bach argues that the impact of this can be life changing.
Think about it. Spending an average of $ 3.50 per day for a Latte adds up to $24.50 per week, $105.00 a month and $1260.00 per year. These figures could help you make big strides towards achieving important goals such as investing more in your 401(k) or saving to fund your children’s college education. And don’t forget about some of the fun family experiences that you could fund each year — all by simply foregoing your morning latte.
Why not take it a step further and use one year’s worth of savings and install your own high-tech machine? You can then enjoy a morning latte — all in the privacy of your own home. That’s what my frugal friends (let’s call them Tony and Maria) did. Now their kitchen includes a state-of-the art contraption – one that serves up lattes, espressos and just about any coffee that you’d like. For them, it provides a daily escape to the Italian countryside without the expense of airfare, hotel or driving to the nearest Starbucks for steamed milk and espresso in a little paper cup.
If you are interested in taking David Bach’s Latte Factor Challenge, a new iTunes app, the Latte Factor calculator, allows you to figure out what you could save and earn in potential interest over the course of one, five, 10 and up to 40 years if you invested those otherwise wasted dollars on a regular basis. After doing the tracking exercise that Bach recommends, you can use the calculator to view your total spend on an average basis ranging from daily, weekly and monthly. Next, after clicking “see savings,” you’ll be able to select a potential interest rate and discover what you could earn over time if you regularly invested the amount you’d normally spend on things like lattes, bottled water, eating out or other unnecessary expenditures.
For some, an aggressive approach to cutting out lattes and all the extra, nice-to-have items is top priority because it means gaining financial freedom sooner rather than later. For others, the occasional evening out, take-out pizza or latte is a small treat that can help keep the peace. It all comes down to achieving the right balance towards saving more than you spend — even if you indulge in a latte every now and then.
