Saving Money With The Latte Factor

We all have our own morning rituals. For me, it’s a nice cup of coffee in the morning, maybe a little scone or muffin to go with it, the perfect way to start the day.

Lately however, I haven’t been to the café for my morning coffee. This is because of the Latte Factor. While giving up such a small treat every morning might not seem much, it’s looking at these small treats that we spend money on, and instead of spending money unnecessarily we invest that money in our future.

When I first heard of the Latte Factor idea, I was attending a seminar about saving and planning for retirement. At the time I was in my twenties and like a lot of young people, had no interest in saving for the future. Every penny I earned, I spent. But when I heard of this simple concept, it stuck with me.

The person who came up with this concept was a man called David Bach, who had written a series of books on saving money called “Finish Rich”. He came up of the name Latte Factor when talking with a young couple who claimed they couldn’t afford to save money. He asked about their daily routines and soon realised that the couple used to stop in their local Starbucks before work each morning for their morning treat.

David told them that if they saved the money they spent on coffee every morning, which was about $10 a day between them, they could save $50 a week. Might not seem much, but that’s $200 a month, and $2600 a year, and that’s a good way to kick-off an early pension.

While I might not be able to quit my morning coffee after all these years, that doesn’t mean I can’t save. I recently changed the way I get my morning coffee now. Instead of visiting the coffee shop and paying for an expensive coffee, my work colleagues and I bought a Nespresso machine for our office and since then, almost all of the staff has given up their café morning coffee. It may not be free but it’s a lot cheaper when we all chip in and buy the pods for the machine. I still from time to time frequent the local café for a nice coffee, but not nearly as much as I used to.

The Latte Factor, of course is just a name for savings made on coffee. The concept can be used in all parts of our daily routine. For example it could be the Food Factor, where you decide to eat in instead of going out for dinner, or the Entertainment Factor, where you pass on an expensive night out in a club, and head for the cinema instead. The concept can be used for anything and not just on the small things on life, but the big things too.

I recently checked out David Bach’s Latte Factor Calculator test to see if all this saving would actually mean something. And boy did it! The test showed me that if I saved as little as €3 (€21 a week) and left it in a savings account earning 4% interest, I could save a whooping €64,000 in 30 years, all from just saving a bit of change every day.

Just last month Permo stated that the number of savers on their books has increased by a huge 162% since 2008. It looks like many of us already are using the Latte Factor, we just don’t know it by that name.

About the Author

Simon Moynihan writes for Bonkers.ie, a price comparison site in Ireland. Bonkers.ie is a free-to-consumer, impartial online comparison and switching service which helps you to compare electricity prices and compare current accounts in Ireland.

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