Paycheck Chronicles

The New Latte Factor

If you've done any research into personal finance, you've probably heard of "the latte factor."  The latte factor, as explained by author David Bach, is the small amount of money, spent over and over, that could add up to significant piles of cash if saved instead of spent.

Over the years, there have been a bjillion-and-one criticisms of Bach's latte factor:  many people have cut back all they can!  why can't I have something that I enjoy once in a while!  but I don't drink lattes!  However, the basic concept remains true:  small expenses add up.

This notion has come through my email/Facebook/twitter boxes a lot in the last week.  First, I got a link to Two Invalid Criticisms of David Bach's Latte Factor.  The same author, Luke Landes, subsequently wrote Three More Invalid Criticisms of David Bach's Latte Factor.

Then USAA sent out this infographic (it is long, and you may have to click on it to make it bigger):



Together, these sources point to the truth that small changes can pay off.  For me, it is probably soda. Or wine.  Or soda and wine.  Do you know how much money you can DRINK in a day?  You probably have some splurge that takes up a disproportionate amount of your budget.  I'm not saying you need to give it up, I'm just saying that you should be aware.

On the other hand, big wins (like changing the deductible on your car insurance) can provide much more savings without decreasing your quality of life.  Big wins are called BIG for a reason....because they're big.  It only takes a few big wins to pay for a lot of lattes (or downloads, or manicures, or wine.)

As with all finance stuff, knowing is half the battle.  Thinking about the little creepy expenses and the big wins together can help you draft a plan that works for you without making your life miserable

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