I think the term “The Latte Factor” was coined by David Bach, a personal finance expert, and the gist of it is that we can save a significant amount of money by reining in our small expenses, such as our afternoon Starbucks latte at $4 a pop. If you cut out the expense entirely, or switch to a less expensive habit, and then put the money in a savings account earning 1% interest, here’s the result:
- Skip latte- Savings: $1474.60/year
- Replace dinnertime wine with soda- Savings: $787.80/year
- Replace dinnertime soda with water- Savings: $262.60/year
- Skip dessert (a typical serving of cookies and milk, ice cream, or brownies)- Savings: $737.30/year
- Switch breakfast from cereal to oatmeal- Savings: $368.55/year
- Skip weekly manicure- Savings: $1050.40/year
Some of these expenses I’ve already cut, but some I haven’t, and I’m curious as to what small, recurring expenses other people have that they might nix. If you’re wondering how to the do the calculations above using your own expenses and interest rates, check out David Bach’s cool Latte Factor Calculator.