See How Cutting A Small Expense Adds Up To Big Savings

The latte factor is a money-saving strategy we've noted before, in which redirecting your money from small things (like daily lattes) to savings can make you wealthier. Not convinced this strategy could make a big difference? Try this simple calculator.

David Bach made the term "the latte factor" popular and his calculator can help you see exactly how much you could have if you cut down on those small expenses many of us don't even think much about spending — whether it's a cup of coffee, fast food or ATM fees.

Simply choose your dollar amount and the annual interest rate for your savings account or other investment vehicle, and get your instant latte factor. For example, cut out the $2 weekly ATM fees by switching to a bank that reimburses them, and invest the amount at 3 per cent and you'll have $1228.01 in 10 years, $8076.98 in 40 years. Redirecting $2 daily has an even bigger payout: $56,694.21 in 40 years.

Of course, tackling your biggest expenses first will get you the most progress on reaching your financial goals. You should also evaluate which things you apply the latte factor to, so you're not cutting back on the little things that matter to your everyday happiness. But seeing in cold hard numbers how little changes really add up can motivate you to find ways to cut out the small stuff that's a waste of money.

The Latte Factor Calculator [Finish Rich via Moolanomy]


Comments

    Not to discount the value of reducing expenses and wise investment, but I believe the value of compound interest has been slightly exaggerated in this article. I hope the author has taken into account the impact of future inflation on the actual value of the final figures (i.e. what can be purchased for $50,000 in 40 years time).

    The question is, is that $2 latte (which will probably be more than 2 bucks anyways), just a $2 factor amounting to 56 grand in 40 years, or is it a $2 investment into social interations within a company or potential meetings with clients in a more friendly atmosphere, or potential chats with bosses and higher management in a more social manner all of which could amount to not 50 grand but potential millions for the opportunistic individual, in that sense, 50 grand extra for your retirement in 40 yrs could be a drop in the ocean.....cutting back on daily lattes is probably a good thing though

    Well it's all in today's dollars. One would make the assumption that the price of coffee increases over the 40 years roughly in line with inflation....

      True, but that is not a helpful calculation to make as you can also assume that, if your saved latte follows inflation levels, the 40 year savings figure is a representation in real terms of how much you might expect to benefit from the saving.

      To explain, if the daily saving of $2 gives you a total of $56, 000 in 40 years, that means that in 40 years you have $56.000 to spend on goods/services at TODAYS prices. That is - if you don't adjust the value of the saved ammount, then you don't adjust the value of the spent ammount.

      Of course wether you adjust for inflation or not, you aren't taking into account that some prices rise faster than inflation (property) or slower (technology).

      I'm always happy to be corrected if this is wrong.

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