3 Reasons Why Keeping Your "Latte Factor" Will Help You Save Money
"The Latte Factor" is a term referring to the small expenditures that you make every day that could add up to huge savings over time. This concept was popularized by David Bach in his book The Automatic Millionaire (affiliate link) and now there are many articles that tell you that saving just $5 a day on coffee will make you a millionaire. The math behind these articles is sound, but should you give up your little indulgences? Here are a few reasons why keeping your "latte factor" will help you save.
It is a small price to pay for happiness.
My husband's latte factor is bubble milk tea. Every week he gets one because it makes him happy. When I started dating him I actually told him that his milk tea fix is costing him hundreds of dollars a year. Needless to say he was not pleased and argued that he saves enough money to justify such a small expenditure. After I thought about it, I actually agreed with him.
He works hard for his money and he deserves to get this one small thing that costs less than $5 a week. I believe that saving money should not be a punishment, so when you deprive yourself of a tiny expense that makes you happy, the whole exercise of saving money will become a negative experience. When we experience negative emotions we are more likely to give up on an endeavor, so if your latte factor gives you a cheap dose of happiness then it is worth keeping.
You can save more elsewhere.
If my husband did cut out his milk tea habit then we would have a few hundred dollars more a year, but that pales in comparison to how much we saved when we asked for a rent reduction and refinanced our mortgage. If you really want to keep your small indulgences then you should try to save on the big things. How many lattes can you buy if you cut out cable TV and watched shows online instead? There are many ways you can save without sacrificing anything in your lifestyle, and I think those things should be done before you stop going to Starbucks.
Reward yourself for saving.
Ultimately, money is meant to be spent. I think it is a good idea to keep your latte factor as a reward for saving money. For example, if you hit your savings goal for the month then there is no reason not to enjoy a little bit of your money. If you keep your small luxuries as a reminder to save money, then they will work out to be positive reinforcement.
The concept that saving a little every day will add up to a lot over time is definitely sound. However, the fallacy in the idea that "eliminating the latte factor will make you a millionaire" is that those who cut out their morning coffee or newspaper usually do not save that money at all. More often than not I have seen people who stopped spending on little things blow the "savings" on something bigger. As long as you are committed to saving consistently, you can build up your nest egg and still keep the small expenditures that enhance your life.
What is your "latte factor"? Have you attempted to cut it out to save money?