I love coffee. As a Melburnian, I need that caffeinated magic like a sapling needs water. The problem is (as I’ve mentioned previously) I also love money.
(Reminder: accurate depiction of me with money)
And coffee costs money.
This is where the Latte Factor come in. Coined by financial author David Bach, the term refers to the small amounts of mindless spending that can add up to a small fortune over time. In Australia, this was briefly linked to the Smashed Avocado scandal that arose when columnist Bernard Salt blamed the millenial’s brunch addiction for their lack of home ownership (as you can imagine, that went down well).
Both men have the same argument, although Salt approaches it in a fury of finger-pointing at the ‘younger generation’ while Bach restrains himself to diplomatically pointing out how much money can be amassed if these incidental spendings can be curbed.
Now I’m in the lucky position of enjoying discounted coffees at most of my workplaces, so I basically never spend more than $3 on a coffee (when I’m at home I use my trusty french press instead- love you baby). That $3 is cheap(ish) by Melbourne standards, and as far as I understand, is basically free if you’re a coffee drinker in America. However according to this handy dandy calculator, even my four or so coffees a week means that over the next say…25 years, that $12 per week means that I will be $21,790.24 out of pocket.
For the curious, that breaks down to $15,600 of actual money saved, and $6,190.24 from interest that I missed out on, assuming that I keep the money tucked away at my current savings rate of 2.5%.
If I were to keep saving for another 15 years (bringing me to approximate retirement age), that figure would be $43,317.72. I don’t know about you, but that’s seems like a sh*t ton of money to me.
But how do those numbers hold up if they’re broken down? Annually, the total figure equates to $1083.
Just over half of what I spend on public transport a year. Or less than my monthly rent. Or about the same as my phone plan.
If I could double my phone bill in exchange for unlimited coffees, would I? Would you?
I think what I’m trying to get at here is that any number can make a difference when accrued over that length of time and with the miraculous benefit of compounded interest. $2 noodles start to look like an extravagance if you calculate 40 years worth of them. But if something gives you joy (and coffee definitely gives me joy), is it worth $43k to me to live without it?
If you want to play around with the idea of saving via reducing your ‘latte’ factor, this is the calculator I used for my figures. Scott Alan Turner also has a fun tool that allows you to choose from some popular vices such as daily soda, repayments for a car you could do without, or weekly Ben & Jerry’s (guilty). Have a scroll through your bank statement and let me know if you spot an unconscious spend that could be costing you thousands! I’m off to have a hunt right now (I’m coming for you, lunch wraps that I could be bringing from home).
If you want to see more of me, you can check out my Instagram & Twitter, I would love to see you there. Many thanks to Kyle at Steward and Slave for reminding me about the Latte Factor with his great post!