David Bach, the author of Smart Women Finish Rich coined the term “Latte Factor” to represent the missed opportunities to build wealth due to habitual unconscious spending on things like unnecessary daily coffee drinks.
Have you ever stopped to think about how much money you could contribute to retirement savings each month if you really buckled down and got serious about your financial security?
One of the areas of wealth building I have taught about in my retirement seminars is this concept of adverse wealth transfers, which is defined as those areas in your finances where you spend money unknowingly, unconsciously and unnecessarily.
When I work with clients, it’s one of the first things we tackle: Finding those areas in your expenditures that can be redirected toward paying off debt or contributing to savings, without reducing lifestyle.
There can be as many as twenty one different areas of adverse wealth transfers, so this is definitely a worthwhile exercise that can yield phenomenal results.
Please know that this is not about depriving yourself.
It’s actually about empowering yourself.
It’s about getting smart with your money.
It’s about being disciplined in your spending in order to reach your money goals.
For instance, if you’re one of those who loves Starbucks (as I do), this could be an eye-opening exercise. Especially if you find yourself there on a daily basis. Add up the cost of your daily lattes then multiply that out by thirty days. I’m guessing it’s a decent amount.
The lost opportunity cost is what you could earn on that money if you were to deposit it into a retirement account, for instance.
Check out this one-minute video to see this point illustrated:
When you consider what two lattes a day could mean for your future financial security, in this example $140,000 in twenty-five years, you begin to realize there is great wisdom in SAVING and INVESTING instead of CONSUMING.
Perhaps you’re not a coffee drinker. Maybe you have other things you unconsciously spend money on: Shoes, handbags, magazine subscriptions, online shopping.
Now please don’t think I’m trying to take away your guilty pleasures, I’m not. I just want you to see how little things do add up over time.
Especially when it comes to saving!
What’s your Latte Factor?