Popularized by the well-renowned author David Bach, the latte factor has become a big talking point over the last few years.
So what is the latte factor? David Bach explains that the latte factor can be small financial decisions, like buying a latte every day, that can have a big effect over the long haul.
Let’s take a 19 year-old guy that just started college. He loves his Starbucks and starts every day with a latte. After reading this article, he decides to put his coffee aside and save and invest that $5.50 every day. To some, this might seem like a small change, but the results can be dramatic.
Let’s assume he saved the $5.50 every day until he was 26 and then he went back to his coffee. During those 7 years, he would have saved about $14,000. That may seem like a good chunk of money but let’s take this one step further. Let’s say he took that $14,000, invested it, and didn’t think about it again until he was 65 and ready to retire. Assuming an 8% return, his $14,000 would have grown to more than $250,000!
Now imagine if he would have saved a little bit more than $5.50 per day or would have continued to save after age 26! The results would have been even more impressive.
Now, I am sure some of you are thinking, “Really, you want to take away coffee? It’s the best part of my day!” For you, the latte factor may have nothing to do with coffee. It is only an example of how powerful small changes can be. Find your latte factor. Maybe it’s eating out for lunch every day, shopping online, or overpriced food at convenience stores. And again, this is not about cutting out things that you are really passionate about. Most often, it is about becoming exceptionally clear about what is truly important to you and cutting out the rest.
So many people believe that getting ahead only happens once you win the lottery or get a big inheritance windfall. This simply isn’t the case for the vast majority of millionaires. Wealth is built one good decision at a time. And these decisions tend to be small decisions that compound into large differences. It is easy to look at big events in successful people’s lives and to assume that one or two big things catapulted them to success. While sometimes this is true, most often big successes are preceded by decades of hard work.
My goal isn’t to make life less enjoyable through cheap living, but to show you how simple it can be to get ahead and change your financial future. It just takes consistent good decisions that compound over a lifetime. Start today!