What is the Latte Factor?

10 03 2010

Sumber:kclau.com
What is the Latte Factor? This phrase is coined by David Bach, author of various financial books such as The Automatic Millionaire, Smart Women Finish Rich, Start Late, Finish Rich, Fight for Your Money and Smart Couples Finish Rich. Each and every one of us has our own Latte Factor. Each of us throw away or spend our money on “little” daily expenditures. These small daily expenditures will add up and actually have a significant impact on your financial well-being.

For example, forgoing the purchase of a pack of cigarettes (RM6 – RM10 per pack) and a cup of coffee a day can save a person about RM10 per day in Malaysia. In one month, it is a savings of RM300 (RM10 x 30). If that person saves RM300 every month and invest it at 7% annual return, the amount will accumulate as follows:

# Years………………………………………………………………….Money accumulated
1 year………………………………………………………………………….$3,905.5
2 years…………………………………………………………………………$8,084.4
10 years……………………………………………………………………….$53,960.1
20 years……………………………………………………………………….$160,107.9
30 years……………………………………………………………………….$368,916.6
40 years……………………………………………………………………….$779,674.9

Note: The above was calculated using the Latte Factor Calculator found at http://www.finishrich.com

Finding out what is your Latte Factor will enable you to save that extra amount which may not seem much at the time but will be a substantial amount years later. This is one idea that I will definitely be imparting to my children starting at a young age.

The times have changed now where temptations are all around us. Our children are bombarded with marketing campaigns to purchase items or material things based on the idea that they need it and deserve to own it. Hence, it is not surprising to hear our kids talk about the latest games, gadgets or other must haves.

During my younger days, it was easier to save money without all the temptations and enticements. It has become more urgent that parents educate their children on the pitfalls of the Latte Factor. It may only be a few dollars spent a day now but may accumulate to ten times more if it is not curbed soon enough. A dollar saved a day becomes $30 in a month. Invest the amount continuously compounding at 7% annually and the money will accumulate to $77,967.5 in 40 years. Double the amount to $2 daily and you will get $155,935. This shows that any small amount saved is still money in the bank compared to having nothing at all.

I wished that someone had taught me about this idea when I was still in high school. I would have loved to see the amount of money accumulated after compounding yearly. The money would have been great to have as a retirement fund or even education fund for my own kids. Hence, I would want my kids to have the choice now to decide how they want to spend their money. Time will be on their side to ensure their money will grow slowly but surely.

Do you think it will be beneficial to teach your children especially your teenage children about the Latte Factor?


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