How your daily habit is costing you money
Over the past few years, one of the most discussed concepts in personal finance is the “Latte Factor”, which was brought to light by David Bach of the Automatic Millionaire book series. The idea is that we all have small things that we enjoy doing daily, ie: lunch at a restaurant, daily newspaper/monthly magazine, drinks from a vending machine, or a morning latte from the local coffee shop. The thinking is that if you remove these small daily activities you can save and invest this ‘extra’ money. For example, if you get a medium Latte every morning which can run $6.05, when you calculate this over 50 weeks out of the year, this adds up to $1,512.90 a year.
The Latte factor is used to illustrate how frequent / daily habits can have an effect on a budget/financial situation.
Since we have been home during the COVID-19 pandemic, I have had the opportunity to re-look at how I am spending money during my daily routine. I often had a coffee 2 to 3 times a week ($6.05 each), have lunch daily at my office bistro (it’s subsidized but it is $2 - $4 a day), monthly magazines ($10). As we are working from home my habits have changed dramatically, I am spending more money on groceries, and having a daily Nespresso coffee (.65 a cup as each sleeve of 10 capsules is $6.50).
I agree that we need to look at all expenses, but I also know that we need to have balance - life is more than only saving , we need to splurge on small things that make us happy.
So how much can a daily habit cost you? Take a look at a couple examples
- Sonia enjoys having lunch at a restaurant every day so she spends an average of $15. Over the course of a week she will spend $75 and in a years (50 weeks) she will spend $3,750.
- Nate likes to use his debit/ bank card for all purchases – daily lunch, coffee, buying cigarettes, but he did not revise his bank plan which results in $1.25 per transaction. After a week he would have spent $1,312.50 a year in fees.
take a closer look at your spending habits
Looking how to rein in spending is a hard task. The one thing that we should not do is remove things that deliver joy - we need to live too! This can be a great time to review spending and discover what habit is really making you happy/adds value to your life.
Here are 3 things that you can do to rein in your daily spending habits:
- Track your spending for a week
For one week, track your spending. This can be done by making a list of every thing that you buy, and I mean everything, i.e.: a pack of gum every week when you get your groceries, a bottle of water after your run, magazines every week. Knowing what you are spending on can help you to see how you can better manage your money.
- See how much you have been spending
Now that you have tracked your spending, check out how much you can save by using David Bach’s Latte Factor calculator.
- See how you can get your daily habit at a better price
Knowing where your money is going you can now see if there is another way to get the ‘fix’ you are looking for at a lower price. For example, instead of getting a bottle of water after each run at the corner store, perhaps invest in a Hydration belt or a hydration backpack.
Summary
Remember, life is made for living and even though I am all for paying down debt, saving for a rainy day and budgeting, having small habits that provide joy are important as well - we need to have a balance.
As we continue to get back to a new-normal, post COVID-19, how will you manage your daily habits so that you can get a balance between a little daily joy and savings?
