The "Latte Factor" is a popular money-saving strategy that entails saving large amounts of money by cutting down on small things — like daily lattes. Personal finance blog The Simple Dollar explains why this strategy can fail and how to rethink it.
Photo by Scott Feldstein.
There's no doubt that saving $5 a day adds up in the long run (and the coffee price logic was a big part of the budget for our recent Mastercheap experiment). However, a lot of people don't put this strategy into practice, for the simple reason that they like their metaphorical lattes:
The problem is what you're giving up. The "latte factor" of course refers to coffee – something that's inessential to basic life, something that's purely a treat. Yet, for some people, a latte a few times a week is a significant part of their emotional happiness. They rely on that sweet flavor and that little caffeine boost and it fuels them throughout a challenging day.
The trick is figuring out which of those little thing really does brighten your life – and which of those things don't. What you'll find is that when you really dig into this question, you begin to find that surprisingly few things really make you significantly happy (beyond the initial burst of pleasure at acquiring something). An awful lot of things we buy are part of a routine or done to make others happy or done because we've believed that it'll make us happy when it really doesn't.
Whether or not you agree that your latte has a large effect on your happiness, it can apply to anything you may be sad about cutting. Instead, try what The Simple Dollar dubs the Laundry Detergent factor: Instead of cutting down on your stress-relieving treats, cut back on something less integral, like laundry detergent. After all, we already know less detergent washes as well.
Again, this doesn't mean you have to scrimp on laundry detergent; it's more of a metaphor — cut back on the things less important to your day-to-day happiness and you'll probably be more successful at saving money. Hit the link to read more and share your frugality success (and failure) stories in the comments.
How Not to Fail at Frugality [The Simple Dollar]