My Latte Factor In 2008. Automatic Millionaire Goals for 2009

by Scott on January 6, 2009

Latte heart vortex

photo credit: Robyn Gallagher

Over the last few weeks I’ve reviewed some of my favorite personal finance books that helped me establish personal finance goals for 2008. The Automatic Millionaire by David Bach is such a book that provided the incentive to look at my personal spending habits and see if I had any expenses that could be cut out and help achieve retirement more quickly. I created an entire article without realizing that I was describing the latte factor. The latte factor is the act of spending money or throwing away money on a daily basis that could be going towards your savings or retirement instead. In my case, I was spending $9.40 a day on Starbucks coffee and pastries. This equated to $2,350 over a year and could have been put into an IRA or savings account. The best part about giving up my Starbuck’s addiction was that I don’t even miss it now. In fact, I purchase Costco coffee and brew it at home. It tastes great and costs just pennies for each cup. Also, I’m not eating as many pastries and instead have a bowl of cereal or fruit. Did you find that you had a latte factor in your personal expenses for 2008? You might not be addicted to Starbucks, but what about all those Red Bulls or Rock Star drinks?

The Latte Factor was not just an expense, but it was about changing how I thought about spending money. What does a Starbucks latte represent and do I really need it now. Can I delay my enjoyment or gratification for an expensive beverage and instead retire earlier or save for something else. Spending $2,350 on something that doesn’t have value or provide lasting entertainment was a huge eye opener for me. In fact, the Starbucks drink was actually only providing a few hours of calories and you could probably argue that they are not that healthy either. The Automatic Millionaire sounds like a fancy word or term, but it’s about changing the way you look at everyday expenses and whether they are helpful towards your savings goal.

Here’s what I used when examining my own latte factor expenses:

1. Does the expense have intrinsic value or entertainment value? Does a cup of coffee provide lasting value?

2. Do I need it? Sounds easy, but many mornings I was just in a routine and didn’t need the Starbucks latte.

3. Can I afford it? Spending $9.40 a day at Starbucks wasn’t putting me in debt, but it wasn’t helping my savings goal. In fact, I didn’t have a defined savings goal and retirement established yet. This was dangerous to just spend frivolously. If I continued spending $2,350 for the next 30 years at Starbuck’s that would be $70,500.

4. What am I teaching my children? Spending money at Starbucks occasionally for a treat is one thing, but $9.40 a day was clearly not healthy for my budget or my body. I found that a blueberry scone had 400 calories and the Americano with half and half had nearly 300. 700 calories for breakfast was not helping me stay healthy for my children. Also, do I want to have my children asking for Starbucks before school or after school each day? Nope.

Did you find that latte factor in your 2008 budget? What was it, and how did it impact your overall financial goal? Have you established a 2009 family budget yet?

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{ 5 comments… read them below or add one }

1 Miranda January 6, 2009 at 10:18 am

My latte factor was bagels. I love bagels. With cream cheese. One costs about $2.50 and has A LOT of calories. So I’m cutting back to an occasional treat — once or twice a month, instead of three or four times a week.

2 Tyler @ Building Camelot January 6, 2009 at 11:42 am

I don’t have latte factor…at least I don’t think I do. We have two kids in a great daycare and that bill alone is as much as our mortgage! We don’t have much wiggle room these days. :-)

3 Blake January 10, 2009 at 12:55 pm

I read Bach’s book a couple years ago, and the Latte Factor was definitely the main sticking point with me. I’ve eliminated a decent number of them, and like you say, most of em you won’t even miss when they’re gone.

Steve Pavlina’s 30 days to success is an excellent way to kick Latte Factor habits that aren’t always easy to break- http://www.stevepavlina.com/blog/2005/04/30-days-to-success/

4 Scott January 10, 2009 at 5:52 pm

@Miranda. I have a weakness for bagels as well and would find myself going to Noah’s bagels several times a week as well. The solution for me was to take my own bagel and cream cheese to work. I would then eat it on the way to the train in the morning.

@Tyler I can understand how having day care for two children can be expensive for a families budget. Before I stayed home with the kids, my wife and I were spending $25,000 a year on daycare.

@Blake Sounds like you have conquered many of your latte factors. Congratulations. Where any of them harder for your to eliminate from your daily habits?

5 $$ March 11, 2010 at 8:29 pm

The latte factor is way overrated. It doesn’t really help that much for retirement when you realistically evaluate it as I do here … http://livinginvol.com/?p=6 .

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