What is the Latte Factor? This phrase is coined by David Bach, author of various financial books such as The Automatic Millionaire, Smart Women Finish Rich, Start Late, Finish Rich, Fight for Your Money and Smart Couples Finish Rich. Each and every one of us has our own Latte Factor. Each of us throw away or spend our money on “little” daily expenditures. These small daily expenditures will add up and actually have a significant impact on your financial well-being.

For example, forgoing the purchase of a pack of cigarettes (RM6 – RM10 per pack) and a cup of coffee a day can save a person about RM10 per day in Malaysia. In one month, it is a savings of RM300 (RM10 x 30). If that person saves RM300 every month and invest it at 7% annual return, the amount will accumulate as follows:

# Years………………………………………………………………….Money accumulated
1 year………………………………………………………………………….\$3,905.5
2 years…………………………………………………………………………\$8,084.4
10 years……………………………………………………………………….\$53,960.1
20 years……………………………………………………………………….\$160,107.9
30 years……………………………………………………………………….\$368,916.6
40 years……………………………………………………………………….\$779,674.9

Note: The above was calculated using the Latte Factor Calculator found at www.finishrich.com

Finding out what is your Latte Factor will enable you to save that extra amount which may not seem much at the time but will be a substantial amount years later. This is one idea that I will definitely be imparting to my children starting at a young age.

The times have changed now where temptations are all around us. Our children are bombarded with marketing campaigns to purchase items or material things based on the idea that they need it and deserve to own it. Hence, it is not surprising to hear our kids talk about the latest games, gadgets or other must haves.

During my younger days, it was easier to save money without all the temptations and enticements. It has become more urgent that parents educate their children on the pitfalls of the Latte Factor. It may only be a few dollars spent a day now but may accumulate to ten times more if it is not curbed soon enough. A dollar saved a day becomes \$30 in a month. Invest the amount continuously compounding at 7% annually and the money will accumulate to \$77,967.5 in 40 years. Double the amount to \$2 daily and you will get \$155,935. This shows that any small amount saved is still money in the bank compared to having nothing at all.

I wished that someone had taught me about this idea when I was still in high school. I would have loved to see the amount of money accumulated after compounding yearly. The money would have been great to have as a retirement fund or even education fund for my own kids. Hence, I would want my kids to have the choice now to decide how they want to spend their money. Time will be on their side to ensure their money will grow slowly but surely.

Do you think it will be beneficial to teach your children especially your teenage children about the Latte Factor?

Read other articles by Jacquelyn at WParent.com on parenting matters and Tips4Everyone.com on solving marriage problems.

### 19 replies to "The Latte Factor"

• Jacquelyn

Hi Woon,

One way I stop myself from spending money is by not associating buying or purchasing something to make myself feel better. A lot of people associate spending money to being happy and having fun. Find other things to do that make you happy without spending any money at all (or at least just a minimum amount of money). You will find that saving money is not hard at all.

• Ian Kree

Hi Jacquelyn,

Great! Thank you Jacq.

Best Wishes,
Ian Kree

• Woon Lip Fuey

Hi you there, its being long time I didn’t put a comment at here.
Before knowing the Latte Factor, when I do a consumption quite often for some months, such as playing at cyber cafe, I spent almost RM10 per day at cafe. One pack of Dunhill per day, I realize that if I quit those behavior and bad habit, I can save a lot of money. However, this need consistency, even nowadays I have stop buying cigarette, attending the cyber cafe not as often as before, those money still can’t be accumulated.
So I think, without a plan and consistency, no matter what bad habit or luxury interest you have quit, you still can’t accumulate your money as well…

Sometime I feel that the monetary world has its power which able to take away my money without my awareness..== Don’t ya think?

• Ian Kree

“Sometime I feel that the monetary world has its power which able to take away my money without my awareness..== Don’t ya think?”

Hi Woon,

Yes, the world able to do it. Although you keep all your money safely, your money could still depreciate over time due to inflation.

Maybe we need “higher awareness” … hmmm …

• Fairuz

I wish i can stop smoke…. 😛

• Ian Kree

Yes, you can. Commit yourself to it. Good luck.

• FastSwings

Stock Market Fast Swings from Fastswings.com – March 4, 2010…

Welcome to the March 4, 2010 edition of Stock Market Fast Swings from Fastswings.com. This time around we have 15 articles including an interesting article on hedging your own company’s shar……

• Lai Seng Choy

Just think about needs and wants. Think twice before you spend. For children, they will learn from their parents. Therefore, we must set ourselves a good example for them. They will tend to live frugally if their parents are frugal.

• Ian Kree

I second you, Lai Seng Choy. In most cases, children do follow their parents. Leading by actions is generally better than leading by words.

• Ken

Yes…I’m in favor of educating children about the power of saving. It’s up to me, not the school system, to do it. Saying no means saying yes to something else.

• Glendon Cameron

This is the same as soil erosion,this what happens to your money over a very long period of time. Great food for thought!

• RockYourVote.net

The Latte Factor…

Finding out what is your Latte Factor will enable you to save that extra amount which may not seem much at the time but will be a substantial amount years later….

• Laikos

Well after all these while, if I would turn back time as some of readers also parent when do we suppose to start teach kids about compound interest and saving discipline? Hope someone can share some thought. I’m not blaming my late father not teaching me this probably because he never know about it either but I myself for sure want to turn the table for my next generation.

• Ian Kree

Yes, I do think that we should teach our children early. They actually can understand compound interest, etc. but we have to have the right teaching method that they, at their age, could understand. Children are a lot easier to be taught about personal financial than us, adults, because we put so much constraints to ourselves e.g. “I cannot save money because … (1001 reasons).” To children, it is a straighforward issue, “I save money because daddy and mummy say it is good.”

• drinkingcocoa

this is a wake up call for the young ones out there. Quitting smoking and other expensive non-productive habits can save one’s financial future. Maturity helps to see ahead.

• Sayeed

Thanks KC…it is absolutely necessary to teach our youngs about the Latte Factor. It seems that we get into our cycles daily looking at where to save and how to make more money, then we miss the chance to educate the Latte Factor.
The next CashFlow game I play with my kids, Latte Factor would be the summary closure to them…even can try out after the monopoly game…Deliberate teaching will get us to deliberate understanding of what we need to do as well as our youngs getting to learn about thier future habits.

• 1-million-dollar-blog

Yes, I agree that we need to teach our kids to save money since they are still a small. The earlier the exposure is the better.

• simplenfun.com