FrugalMaster.com

The purpose of this blog is not so much about how to become a millionaire, as it is about sharing simple strategies for saving money and becoming a little bit more frugal in our lives. That is not to say however, that wealth cannot be achieved by be being frugal. Just check out The Millionaire Next Door, by Thomas J. Stanley and William D. Danko and The Automatic Millionaire, by David Bach.

David Bach discusses in his book the concept of what he calls the “Latte Factor®.” For those who may not be familiar with this concept, Bach states that wealth can be achieved by redirecting little everyday expenditures. In an investment class, a student had challenged him about the reality of being able save ten or even five dollars a day when one is living paycheck to paycheck. He began to question her on her daily spending habits and discovered that she spent about $3.50 a day for a non-fat latte, another $1.50 for a non-fat muffin, $4.45 for an afternoon protein drink, and $1.75 for a power bar. That totaled up to a daily snack budget of $11.20. His argument was that if she just took $5 of that money and put it in a retirement account, this would equal $150 a month, about $2000 a year. He argued that if that retirement account had a 10% annual return, by the time she was 65 (she was 23 at the time) she would have almost a million dollars.

Now some of us don’t have 40 years ahead of us to be able to take advantage of the effects of compound interest. And of course, we are assuming that we are earning 10% annually on our investments. However, Bach does make a good point. If we look at our little daily expenditures, I’m sure we can find an extra five dollars to put aside. The question is, are we willing to do so. If you are in serious debt, will putting away an extra $5 a day make a difference? Perhaps we should be focusing on the bigger ticket items such as car and rent costs (see Golbguru’s blog titled “Getting Rid Of Your Debt Without Worrying About the Latte Factor”

Whether or not you are willing to give up a little bit of your day to day expenditures, it is important to at least realize where our money is going and the impact it could have in the long run. Interested in finding out what saving $25 a week for the next 10 years can add up to? Check out The Latte Factor Calculator to find out what your latte factor is.