JW’s Financial Coaching Podcast JW’s Financial Coaching Podcast-A show devoted to answering your personal financial questions and covering current events in personal finance. Giving people a new perspective on their money!

December 16, 2014  
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  • What the Latte Factor metaphor is
  • Popularized by David Bach's book Automatic Millionaire
  • What you can do instead of the Latte Factor
  • What are you doing with your extra money from lower gas prices?
  • Quote of the week

The JW’s Financial Coaching Podcast_81

I love to read. I especially love to read books on personal finance. It doesn't matter who is the author. Lately I've read a few books from Ramit Sethi (I Will Teach You to Be Rich) and Zac Bissonnette (How to Be Richer, Smarter, and Better Looking Than Your Parents) that mentioned the Latte Factor. In reading other books over the years I've heard a lot about the Latte Factor, both good and bad but never fully checked it out for myself until recently.

For those of you who don't know, The Latte Factor is a metaphor created by personal finance author David Bach and is predominately featured in his book The Automatic Millionaire (You can download a free audio copy at Audible.com). The Latte Factor is a metaphor on investing which shows how the everyday small expenses can cost you thousands or even millions over time.

The concept is simple; take that "small" daily habit that you spend money on whether it is your daily latte, fast food trip, pack of cigarettes, etc. If you took that amount and instead invested it it would grow.  Below is an example from the book on how much money you would invest if you cut out the $3.50 out of your daily spending or $5.00:

LatteFactor1As you can see after a decade you would have a good chunk of money, but not life changing money. But looks at what happens if you invested that amount each month earning an average of 10% a year

LatteFactor3With that being said on today's lesson of the show I share the pro's and con's of the Latte Factor metaphor. Overall I think it is a great metaphor and anything that motivates people to start to get into investing I'm all for. But I also like focusing on the bigger stuff instead of having to scrimp and cut out a lot of smaller things in your budget. So what instead if we did, not the Latte Factor, but the Car Payment Factor?

The average car payment today is $470. Below is what would happen if you invested the average car payment, or half of the average payment:

LatteFactor2That is an expensive car payment! We cover all of these topics and more on today's lesson. But what are your thoughts on the Latte Factor? Have you given up small daily pleasures for bigger gains? What have the results been?

This lesson’s quote is brought to you by the JW's Financial Coaching Newsletter and comes to us from Albert Einstein:

"The hardest thing in the world to understand is the income tax.”

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If you have any comments, questions, or ideas for future shows you can send them to me and I will integrate them into a future show. There are two ways to get in touch with me: 1.) Email me at JWFinancialcoaching@gmail.com - Please put “podcast” in the subject line and keep your questions brief so they are readable on air. 2.) Simply fill out the form on the contact page. Please fill out your name, email, and your question/comment/suggestion and we will read it on air.

You can find prior editions of the podcast at the podcast archive page.

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