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I read the book book the Automatic Millionaire by David Bach many years ago.  It is a simple and quick read, while not a very complicated book I still recommend to people as the material is easy to digest.  The one idea or principle I really like from the book is the idea of the Latte Factor.

What is the Latte Factor?

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Based on a simple idea, there’s a new financial theory known as The Latte Factor. To put aside only a few dollars per day for your future, rather than purchasing items like lattes, cigarettes, fast food, bottled water, magazines, etc., an individual can see a difference in his/her finances by no longer living from one paycheck to another.

The Latte Factor dictates that an individual can redirect the unnecessary spending to him/herself. Imagine being able to change your destiny by altering bad spending habits as well. The number one step is to identify your Latte Factor and how much it costs you per day. An individual can actually see how much he/she can save in several years. The Latte Factor calculator can be used to aid the individual to watch his/her savings increase.

What is Your Latte?

I’ve always wondered what people would do without a cigarette in the morning before work, during morning break, lunch and afternoon break. Then they smoke another one after work on the way home and God knows how many more before bedtime. Although the smoke alone is enough to choke a horse (not to mention what the nicotine is doing to your lungs), a pack of cigarettes a day costs on the average $4.20.  That comes to $127.30 per month ($1,527.60 per year)—and this doesn’t even include sales tax.

At the end of the year, which $1,527.60 can go towards your savings account, home equity, a car payment, settlement of debt, vacation plans, child’s education, and so much more. It’s a fact that most individuals with an addiction to cigarettes also have a fixation for coffee, so with the $3 per day spent on coffee, we’re talking about approximately $3, 000 a year spent on cravings and “wants”.  Javaholics can save approximately $1500 annually alone by reducing the need for caffeine.

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Starbucks at the Beach

Many Americans are actually greater in debt on credit cards than in balances of bank accounts. Thus, The Latte Factor is vital in keeping one’s spending well under control. We need to focus more on our necessities than on our desires when shopping. This doesn’t mean that we need to negate the wish for the occasional treat in our purchases.

We’re just trying to find a means to reducing the small, unnecessary luxuries when working on limited finances. It’s highly probable to save more money in a painless way without taking drastic measures to change our lifestyle. The Latte Factor is analogous to a mutual fund, as opposed to “blue chip stocks”. It may not be luxurious or sexy, but it sure does the job in providing a safe investment.

My Take

While I am first to admit I enjoy my Iced Soy Latte (lactose intolerant), being aware of how you spend your money on these $3-$5 items can really help you see where quite a bit of your money goes.  If you can make your own coffee I also recommend purchasing one of these awesome Nissan Themos Mugs.  I own one and they are very sleek, mobile and keep your coffee nice and hot.  If you can’t find time to make coffee in the morning buy a coffee machine with a timer.

The Negative Double Down - Turn a Negative into a Positive

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"Double Down"

If you simply can’t go without your Starbucks coffee then do what I call the "negative double down" method.  It is very simple, whenever you purchase your latte or coffee just pay double, in other words if your coffee cost $4 you must also pay yourself $4.  Therefore the coffee or latte will cost you $8 instead of $4.  Make sure you put the $4 into a something important like an investment, savings or debt reduction instead of money for clothes or a vacation.  It is sort of like having a swear jar but for coffee.

This will do two things, it will make you think twice about buying your "latte" and will also automatically get you to put money towards a positive.  Just something to think about.   Personally my "latte" is eating out, which is probably spend about $500+ month.  By doubling down I save about $6,000 bucks.