In the personal finance blogosphere, a raging debate about the Latte Factor persists, even though David Bach discussed in the The Automatic Millionaire was published way back in 2004.
After reading The Automatic Millionaire, I put my own thoughts down in the form of the Headache Factor. I put more weight on the side of the argument that it’s the LARGE expenses (i.e. house and transportation) that matter more than the seemingly small expenses (i.e. food and coffee).
And then in February and March of this year, we became subject to the Latte Factor that David Bach talked about in his book.
*cue dramatic music*
On Saturday mornings, we found ourselves at local coffee shops literally sipping lattes. At $4.50 a cup, that’s $9 per two people (plus tip).
Except that if you’ve been following us for long enough, you know convenience and food are a REAL problem for us, especially when you put the two together. Tack on bagels and fancy cream cheese and that $9 morphs into $20. Saturday mornings were getting a little spendy.
During the week, we make coffee at home. And since discovering the magic that is ALDI, we purchase organic, fair trade coffee from ALDI. Our bag of ALDI coffee is just $4.79.
Why is it that our beloved French press coffee at home is good enough six out of seven days a week, but NOT on Saturdays?!
Our dedication to home-brewed coffee was put to the test when the beaker of our glass French press broke and it was going to cost $20 to replace it.
I know, I know. First world problems.
We trucked it across the county to Target to find a replacement beaker and stumbled into a world of artisan coffee makers previously unknown to us. What we found at Target has changed our lives and it could change the lives of all those who enjoy the occasional latte.
It’s the Bialetti.
When we discovered the Bialetti, it became IMMEDIATELY apparent why we enjoy lattes…it’s the espresso! *facepalm*
With the Bialetti, we can make espresso at home, which eliminates the need to go to coffee shops.
The best part? The Bialetti is made of steel and it cost just $24 when you purchase from Amazon. No mechanics. No glass.
Here’s a link if you’d like to check out the Bialetti espresso maker options; this is definitely an Amazon affiliate link right here and if you use it, we’ll be compensated for referring you if you choose to buy it. Don’t worry—it doesn’t cost you any extra. Consider it my tip for changing your life. 😉
We don’t use espresso beans, just the regular coffee from ALDI that we’ve been purchasing for months now. We also don’t have a way to froth milk, so we just warm macadamia nut milk on the stovetop. I realize that we’re not actually making lattes, but trust me, what we’re making at home tastes much, much better than what we had purchased from coffee shops.
Spending on Lattes and the Latte Factor
Since you’re likely into personal finance, you might be familiar with David Bach’s Latte Factor, which his website has an entire page and a Latte Factor calculator! Calculators are so fun. I spent a solid hours playing with the calculator.
Spending Less on Actual Lattes…
By not spending the $9 each week on those coffeehouse lattes, we’ll have over $47,000 when Garrett nears traditional retirement age. Not bad.
So let’s say we apply a mix of strategies, attempts to cut both large expenses AND small expenses. What happens then?
Spending Less on Auto Expenses…
Since we’re now a one-car family, we spend far, far less on car-related expenses than we have in years prior.
But what about the average family?
According to Edmund’s, the average car payment is $483, but that’s just the payment…no maintenance, no fuel, etc…YIKES!
Let’s say that instead of having a car payment, you paid cash for a used car. You’d save about $16 each day or the equivalent of nearly 4 lattes.
Without that $16 a day payment, you’d have more than $590,000 in retirement. I have a hard time imagining a new car that’s worth nearly $600k.
Spending Less on Cell Phones…
Last year, we spent more than $140 on our cell phones. I had difficulty locating any recent information on the average cell phone bill, so we’ll use ourselves as an example for this one.
Garrett’s employer subsidizes his phone, so we don’t pay for his cell service. I made the switch to Ting Mobile in late 2016 and it’s been awesome! Read my review and tips for using Ting Mobile.
If we cancel Garrett’s phone line in the future and we have just one phone line with Ting, we’d save about $4 a day (about 1 latte).
That’s more than $147,000 in 30 years.
If we had two lines with Ting instead of just one, we’d save about $3 a day (less than 1 latte) and have more than $110,000 in 30 years.
Spending Less on Groceries…
Again, I had some difficulty locating recent figures our the average grocery bill. Let’s use our own data again, shall we?
Last year, we were spending a LOT on groceries, often exceeding our $600/month budget line item. This year, we’re trying to bring this down to $450/month. Honestly, this is a struggle, so maybe this will help motivate us…
At $5 a day saved (a little more than 1 latte), we can put another $184,000 in our retirement accounts.
Spending Less on Mortgages…
According to The Motley Fool, the average mortgage payment is $1,494. Our big house mortgage payment wasn’t quite as high as the average, but it was close.
When we downsized to the small house, we didn’t worry about the payment. We focused on eliminating our mortgage. How could we cut our mortgage payment? Less house, of course! Naturally, having a smaller house led to a smaller mortgage payment of $667 each month.
Since we paid off our lower-than-average mortgage, we’re saving $667 each month or over $22 a day (4-ish lattes).
But the calculator only goes to $20 a day…more than $737,000 in 30 years.
The Real Impact of the Latte Factor
Given our (former) weekly coffee habit, I see how we can’t retire on the basis of a latte-free life—we’d run out of money.
However, when you consider how a combination of changes can make a difference, I can get behind the Latte Factor because it’s the same message behind The Slight Edge. Making small changes results in big changes over a long period of time. Small changes AND big changes? Bigger change faster, at least that was the case for us!
All these attempts to reduce our expenses has amounted to this. Per the Latte Factor calculator, if we were to invest for 30 years the money we saved by cutting all these expenses, we’d have around $1.8 million for traditional retirement.
I’ve still got a foot in both the “manage our expenses” and “increase our income” camps, but what do you think?
Are you Team Latte Factor or Team Increase Income?