Your latte factor refers to the amount of money you spend each day on superfluous items such as a latte (coffee). I first came across this term in a book called The Automatic Millionaire by David Bach. In it David Bach mentions that he was doing a seminar once teaching people about saving money. He told everyone how they could save several hundred pounds or even thousands over the course of a year simply by taking account of their own ‘latte’ factors.
He used a woman as an example and asked her what she would do on a typical day in terms of her spending. She said she would grab a coffee before work and then also in the afternoon and a couple of muffins to go with it. Then for lunch she would spend some on her food. Her running total for each day was around £10 just on coffee, muffins and a few other luxuries. Although she had put this spending down to ‘treating herself’ and said that she had earned it, David showed that on an average day of spending only around £10 on items like these, based on a 5 day week and over the course of a year she would spend £2600.
Simply by taking account of our daily spending habits we can become more aware of the money we spend. People mostly focus on what money they have coming in and seldom take the time to look at their own spending habits. The book suggests that you take note of every thing you spend money on over the course of a week. Each time that you purchase anything, however small, make a note of what you spent and what you purchased. If you do this for a week you will soon see how much you fritter your money away on needless items and ‘luxuries’.
How else could you spend this money? Instead of having your morning latte, set up a daily automatic bank transfer to a saving account in the amount you save by not purchasing that coffee. Keep the transfer in place, running each day, for as long as you have given up your daily ritual of buying a latte. Over time you will notice your account building up. Simply by noticing our spending habits we can save thousands over the course of a year.
‘The Automatic Millionaire’ is not a book about getting rich quick! It does offer sound financial advice on eliminating debt, avoiding over spending, avoiding credit and building wealth over the long term. Another great piece of advice in the book uses an anecdote of ‘big hat no cattle’! ‘Big hat no cattle’ refers to someone who has all the trappings of wealth such as a fancy car, a big house and and flash watch (or a big hat!), but none of the financial wealth to back it up. Rather they more likely have a heap of debt and are buying on credit and living on borrowed time! The chapter suggests that instead of falling into the trap of accumulating ‘things’ to project a self image of success which is essentially false, we should garner a more frugal approach and have a more humble demeanor, concentrating instead on spending wisely, avoiding and paying off credit, mortgage and debt. Not only does it save money but it also saves a huge amount of energy trying to project a self image which then needs to be sustained.