The Latte Factor: What’s the Lesson?

June 16th, 2008 | by Molly's Brother |

From time-to-time, there is a lot of debate as to whether David Bach’s copyrighted “Latte Factor” really adds up to substantial savings. His argument is this: If Americans cut out the small vices in their lives, they would end up saving upwards of $1,000,000 over the course of their lives. The numbers are disputed (it assumes at 10% annual return rate, among other things).

Like others, I dispute the actual numbers. Unlike others, it’s an argument I support and a stand I take.

COFFEE AS METAPHOR

First off, not everyone is a coffee drinker. Great, we get it. However, the designer/expensive coffee is supposed to serve as a metaphor for the crap you’re probably wasting your money on. Said crap leads not to financial security, but to financial instability. My metaphorical-coffee? Yeah, well, it was coffee. Until I limited my Starbuck’s purchases to one or two drip coffees a month. At this moment, I don’t have anything else that I waste money on (thank God). Give me time, though. I’m sure something will turn up.

THE LESSON

The lesson to be gleaned from Bach’s theory is this: Reduce your spending on frivolous items and, most importantly, make sure you spend less than you make.

But I wonder how much this “Latte Factor” really figures in to people’s spending habits when they face tough financial times. For the past few months now, reports have surfaced that individuals are not using their credit cards; that people are not spending money on the frivolous items–like coffee at Starbucks–as often as they once were. So, what happens when people are in financial straits and simply have no more areas to cut spending in their lives?

MAKE MORE MONEY

That’s when it becomes incredibly important to increase the money that comes into your life. If you can not cut your expenses any more, but still face financial stress, then perhaps it is time to take on that second–or third–job. You need to figure out a plan to make more money (in addition to continuing to cut your expenses).

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