If you saved $5 per day, you'd be a millionaire in 41 years. If you save $10 per day, you'll do it in just 34 years. But
the average American lives paycheck to paycheck, so where would they find that kind of extra money?
One answer: the
latte factor.
The latte factor is the name given to the concept of seemingly insignificant purchases adding up to
very significant costs. The easiest example: the latte. The average latte runs around $3. Simply cut out the lattes (and a
few other insignificant purchases) and *boom* you can be financially free.
I'm not sure who exactly gets credit for coining the term "latte factor" but I first heard about it from David Bach's book,
"The Automatic Millionaire." I suggest everyone reads that book. A quick search online, however, tends to give credit to several different
people for coining the phrase.
Nonetheless, the concept is very simple; the actual implementation of it may not be,
though.
I would be pressed to argue that coffee is one of the things that the average American purchases regularly,
and it is also one of the things that they regularly overpay for. Regardless of whether you visit coffee shops or not, it
is hard to deny the fact that places like Starbucks gets far more out of you and your money than you get out of them and their
coffee.
Coffee shops are not entirely evil, of course. Even I enjoy an occasional night out with friends or family
just lounging around at a coffee shop talking about the good ol’ days or whatever we happen to talk about. But the key
word there is “occasional.” The “latte factor” wouldn’t necessarily refer to the occasional
coffee shop visit, just like diets don’t focus on an occasional cookie. In either case, the true problem lies in consistently
“breaking the rules” so to speak; the daily Starbucks or cookie. That’s where the problem lies. And
we all know just how easy it is to say, “hey it’s just one coffee” or “hey it’s only a couple
of dollars.” But just like a few cookies day after day can add up to larger pant sizes, an overpriced cup of coffee
a day (or a few a week even) can add up to lower bank accounts and more money problems.
Now some people don't have problems saving money or don't live paycheck to paycheck. If you are one of these, consider
yourself to be very lucky - the average American lives paycheck to paycheck and says to themselves, "I'll never get out of
the financial mess I'm in" or "I'll always have money problems" unless - unless what? - "unless I make some more money."
The solution isn't in just making more money: the solution is in better money management. We have seen it time and
time again in those who win the lottery even: they are broke (or bankrupt) many times just a year or two after winning a $1
million + jackpot. Why is that? Well a variety of factors creep in: not realizing that a good chunk will go to
Uncle Sam, offering excessive gifts to friends, and, the big one, not having good money management to begin with. If
someone has the mentality of living paycheck to paycheck, then they will see their million dollar jackpot as just a really
big paycheck that "should" be spent. And spend it is what usually happens.
