The “Latte Factor” - Cutting Debt By Cutting Out the Little Expenses
3 September 2006This MSNBC article has a name for the little expenses that tend to balloon into bigger ones over long periods of time - the “latte factor,” after people who spend $3 a day on coffee, only to realize on examination that they’re spending a thousand bucks a year on that daily indulgence. The article only points to a few other examples - clothes, shoes, and a couple who decided to stop spending entirely on nonessentials for environmental reasons. But there are quit a few others that many people have:
Soft Drinks - I know lots of people who have 4 or 5 of these a day. Say it’s roughly 20 cents each - that’s $365 a year.
Smoking - This should be a no-brainer. If you quit, you’ll save thousands. According to this article, smoking a pack a day costs an average of $1,600 a year - the costs vary from state to state, but it’s obviously a big drain on your finances. Those costs add up - in fact, the single best thing someone older can do to save for retirement or pay down debts is to stop smoking. Check out these numbers:
A 40-year-old who quits smoking and puts the savings into a 401(k) earning 9% a year would have an extra $250,000 by age 70.
So there’s a great motive for anyone thinking about kicking the habit - you can have the money to retire, and make sure you live to use it.
Alcohol - Say you go out once a week, spending $15 on those expensive beers or drinks the bar is selling. Over a year, that’s $800.
Eating out at restaurants - $20 once a week? That’s $1040 a year.
There are probably a lot of others you can think of, but you should be noticing a common theme: they’re all little examples of splurging for pleasure. Everybody’s got one - and honestly, it’s hard to live life without having something you buy or do every once in awhile to perk yourself up. But it’s also easy to substitute the expensive pleasures for cheaper ones. Can’t quit smoking? Buy a cheaper generic brand. Want that soft drink fix? Kick the Coke and get the 5 cent Grocery Store generic pretend Coke. Your friends want to go out all the time? Eat dinner beforehand and get an appetizer. My advice is to take a long, hard look at your spending and decide if it’s worth it - would you rather have the Cokes or the $250,000 you’d save up over time? It’s an easy choice to me.
Discuss this in the Free the Drones Saving Forums.
One Response to “The “Latte Factor” - Cutting Debt By Cutting Out the Little Expenses”
November 14th, 2006 at 9:43 pm
As you said, you can’t live with out some small pleasures. Don’t eliminate everything, as eventually you will find yourself sabotaging your own plan (by buying something ridiculously expensive).
My suggestion, set up a budget for those “fun” things that help get you through your day. The key is to be aware & try to limit, but not eliminate. Your personal sanity is way more “expensive” to lose.