The Latte Factor & Managing Your Money?

The Latte Factor & Managing Your Money?

This segment has little to do with making Latte’s and is more so about the concept coined by David Bach regarding saving money. Let’s see how this “Latte Factor” can help us all save.

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The Latte Factor

The Latte Factor Explained
The following is a guest post.

David Bach coined a term in his book Finish Rich called “the latte factor.” It is the simple idea that the small trivial things we spend on everyday adds up to an extremely large amount over time. The “latte factor” is actually somewhat of misnomer as it covers a lot more than lattes. It can be the candy we buy to snack on out of sheer boredom. Or the cigarettes we buy because we just can’t shake the nasty habit. Or the subscriptions to the magazines we don’t read but are too lazy to cancel. Heck it can even be the miles that we drive to work everyday. The latte factor is the unconscious spending on the little everyday things that do not add any value to our lives. Let’s discuss more about the latte factor and how it can help us get a better grasp of our everyday spending and save a bunch of money at the same time.

The Math Behind The Latte Factor

The math behind the latte factor is pretty solid and makes absolute sense once you think about it. A latte at Starbucks costs $4.

Let’s say you save that $4 instead and invest it. 40 years down the line, that $4 becomes almost $30 if it grows at 5% annually. How about growing at a rate of 8% annually for 40 years? That’s $98.10. That’s right. $4 growing at 8% interest turns into $98.10 in 40 years, compounded daily. Just go ahead and plug those numbers into any compound interest calculator and you will invariably get the same results. So while you are spending $4 on a latte everyday, you are actually foregoing $98.10 in future income. Of course you can’t simply just put in $4 here and there into an investment account (as that would cost than your actual investment). But the point is to think about what that $4 means in the future.

How much do you spend on frivolous items weekly? $100? $200? I know for years my latte factor was eating out during lunch. I ate out at lunch almost everyday. I ate out because I was too lazy to make food at home. It wasn’t because I didn’t have time—it was just that I didn’t want to be bothered to go to the kitchen to make some food for work the next day. So each week, I would spend about $50 on lunch. For a month, that’s about $200. For a year, that was $2,400 in lunch. Instead of eating out everyday during lunch, I could have saved that $2,400 and invested it at the end of the year. What would that $2,400 be at the end of 30 years, growing at an annual rate of 8%? That would be slightly over $26,000. What about 40 years? That would be almost $60,000.

The latte factor teaches us about the dangers of habitual, unconscious spending. Spending $3 here and $5 there won’t mean much during the transaction. However once you get a bird eye’s view of your daily spending, it will present a much clearer and more ominous picture of your personal finance habits.

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The Latte Factor

Figuring Out Your Latte Factor And Changing Your Habits

Recognizing the latte factor has to do with changing the very habits that we act on every day. Changing habits does take time but it helps if we are able take a long-term macro look at our spending. Often we rationalize our actions by saying “oh it’s just $2 this one time. I will be the last one this month.” However, will it be?

The latte factor isn’t something that is going to make us rich (alone). However, it is something that can save us a whole lot of money and it is something that can bring about discipline in our spending.

To figure out how much you will save with the latte factor, use David Bach’s latte factor calculator.

To see how big of a saving it is, just go ahead and plug in the numbers into David Bach’s calculator. Instead of spending that $10 a day on different small item purchases, if you were to put that into an investment that yielded a 6% return on your investment, over the course of 20 years, you will have accrued $142,323.45. You can try out the latte calculator for yourself and see how much your latte factor is costing you. This scenario is calculated on your right. Saving $10 a day is not that hard. At the end of the month, it is just $300. Saving $300 a month becomes a lot easier once you start realizing a lot of the spending you do on a daily basis does not bring about any type of long term value.

What It Means To Take Control Of Your Latte Factor

Taking control of your latte factor means the willingness to give up on the little things for the sake of big wins (those that bring long term happiness and value). It calls for discipline of your spending habits.

However, a total stoppage of something we enjoy and do everyday is extremely hard. And honestly, I do not advocate for that, and I don’t think David Bach does either. I do love my occasional Starbucks or lunch at a restaurant—and calling for a total stoppage is somewhat impeding my freedom to enjoy a little bit of what my money affords me to do. I do not advocate hording all your money until retirement. What is the point of earning money if we cannot enjoy it right? That is why changing our spending habits involves little adjustments, instead of complete 360 changes. Instead of having a coffee everyday, you might try having it every other day and then bring coffee from home on the days that you do not buy coffee. Or instead of eating out for lunch everyday, try eating out every other day.

The fact is that some of the small everyday items we buy are some of the simple joys of life—and the joys of being able to spend the money we work hard for. The true purpose of the latte factor is to look at our everyday spending and see how we unconsciously spend on things that do not matter to us and brings us no long term value or joy. That is the stuff that we should work to eliminate. Everyone has their thing that they love spending on—be it latte everyday or shopping every weekend. I don’t think we should just stop spending on what we love for the sake of compound savings 20 years down the line that we might not even see. The main point is to isolate and cut frivolous spending and cut back on things that does not provide long term value. Cancel that gym membership that you don’t use. Cancel that subscription to the WSJ if you only read the premium version a couple of times a month. The point of the latte factor is to not make you rich—it is an idea used to make more conscious spending decisions. Curbing unnecessary spending, actively saving money, and investing wisely can make for a very fruitful retirement without having to totally abstain from daily enjoyments

Insha Allah this was beneficial. I personally have applied this for over a decade and find that the best time for me to really enjoy “spending of money” is to do it with my family. So I don’t go out or eat out all week – but rather, on Saturday, we enjoy “something” good together as a family.





Ummzaytun represents versatility as it is the Mother of Olives. The Olive fruit is an extremely durable, versatile and delectable fruit. It is the base of many foods yet it can also be the centerpiece. I love this name because in many ways it represents me. With the graciousness of Allah SWT I am blessed to be a wife, a mother of two wonderful boys (Masha Allah!), a family Chef, completed my MBA, got a great career and now have The opportunities that have been presented to me up till this point have all been self indulgent however this time around the opportunity is to serve and give back to my sisters in Islam and empower them with stories, life experiences and a warm community experience. I welcome all sisters from all nations to join and be a part of this exciting community.Bismillah~Ummzaytun

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