Did you enjoy that Venti Java Chip Frappuccino with an extra shot of espresso this morning? Or did you skip the branded jug of indulgence and enjoy a lunch out during your workday instead? No matter how insignificant one of your daily expenses may feel, the numbers don’t lie. Every dollar you spent on a discretionary item had the potential to increase your net worth — probably more than you think. A deeper look at how purchases add up over time reveals why cutting small expenses is often promoted as a popular way to improve your finances.
David Bach, author of The Automatic Millionaire, served the personal finance world “The Latte Factor” more than a decade ago, but it remains relevant in understanding the strength of savings and compounded returns. This staple in money advice is based on controlling expenses today in order to provide yourself with a better future. Remember, money’s only something you need in case you don’t die tomorrow.
“The Latte Factor is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself,” Bach explains on his website. “Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, fast food, cigarettes, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.”
Let’s take a look at how much three everyday items really end up costing you, using The Latte Factor Calculator.