The Latte Factor – How To Be Financially Smart & Intelligent

This weekend, I was reading a new book called “The Automatic Millionaire” written by David Bach. The book is not a how-to book on becoming a millionaire with all the mumbo-jumbo; rather, it’s a book on how you can be a millionaire with just your work and salary. It’s about being financially smart. In that book, one very important concept called “The Latte Factor” came up.

grande latte photo

I will give you a clear explanation of how you can be financially smart and probably even become a millionaire with this simple idea.

The author, David Bach, he was conducting a financial session over a period of 2 weeks, for 10 hours, for around 50 people. Near the end of the session, a 23-year-old girl stands up and tells him, “David! Whatever you have taught us during the week on how to become an automatic millionaire, how to be financially smart, all of that sound very good, but only in theory. I am a 23-year-old girl and I earn pretty well, but I almost never have the money to pay myself first. When there is no money left to pay myself first, how do I even save?”. Needless to say, the author was stunned. He wanted to see if all the prerequisites are met. The following is their conversation.

Him: Okay. Let’s not jump to conclusions already. You are very sure that you don’t have any money, anything at all left for you to save?

Her: Nope. I am positive about that.

Him: Okay, here, grab the marker. Go to the board and do as I say.

Her: (Walking to the board with the marker).

At this stage, the author didn’t actually know what he was going to do, but he wanted to prove a point because almost everyone in the class was nodding when she said that they almost always have nothing to pay themselves first. What happened next was a fascinating part.

Him: Now, let’s not think as big as a month’s time. Let’s take one day. Let’s start in the morning. Do you have the habit of drinking coffee in the morning?

Her: Of course, yes! I can’t go a day without drinking coffee in the morning.

Him: Do you make your own coffee?

Her: No way! I haven’t got time for that.

Him: So, do you drink your coffee from the coffee pot in your office?

Her: No. I buy one on the way to work.

Him: Okay! That’s a start. Do you buy from one of those high-end coffee shops?

Her: No. I get one from Starbucks.

(Like Starbucks is a low end and a cheap coffee shop :p )

Him: Okay. What do you get?

Her: A grande non-fat latte!

Him: How much does it cost?

Her: 3 dollars and 50 cents.

Him: That’s great! You must be getting something to eat along with it right?

Her: Yes. A fat-free donut.


Him: Fat free? Fair enough. How much does that cost?

Her: A dollar and 50 cents.

Him: Okay! Write them down on the board. $3.50 and $1.50.

Her: (Writes that on the board, and the people in the classroom have already started enjoying this)

Him: Now, once you are in your office, do you have a break in between?

Her: Yes. I take a break once at 11 o’clock.

Him: Do you drink anything during the break?

Her: Yea, I drink fresh juice during the break to clear my head.

Him: Does your office provide you free juice?

Her: No. I get it from a place nearby.

Him: Which place?

Her: There’s a place called Jamba Juice near Starbucks. They provide pulpy rich fresh juices and it gives so much oxygen to your brain, it makes me feel fresh.

Him: Okay. Great! How much do you spend on that juice?

Her: I spend $3.75 on the juice.

Him: Write that down.

Her: (Writes it down on the board)

Him: Now, do you take anything to eat with that?

Her: Yes.

Him: And how much does it cost?

Her: It costs $2.25.

Him: Write that down too.

Her: (Writes it down).

Him: Now, what does it total to?

Her: (With an embarrassed face) Eleven dollars.

Him: Now, it is not even lunch time and you have already spent $11. I am not saying that you shouldn’t spend at all, but if you had your self-made coffee at home in the morning with an apple and a toast, it would cost you less than $2. For the break, you could prepare your juice at your home and take it to work with whatever you want to eat. Overall, you’d save around $5-$7 a day.

Now that totals to around $200 a month on average, and it totals up to almost $2400 a year. Now, if you put that $2400 a year even in a 401k (pension savings similar to PF in India) account, by the time you retire, you’d have somewhere around $1.4 Million.

Now, you might be thinking, “but that won’t be much in 30 years!”.

You know what will be worse than having $1.4 million dollars in your name even if it is not much? – Having $0 in your name as savings.

It’s just coffee and eatables here with respect to this woman. In your case, it might be cigarettes, or alcohol, or eating out in restaurants every weekend, or something similar. You can almost always find your latte factor and how much money you are spending every day on things that go by unnoticed, which if saved will grow up to save your ass when you get older.

The author was invited to a radio show to present his work. When he told about his teachings, the radio show host said that the Latte Factor was just a bunch of b.s. The host said that he was earning a 6 figure income but still was unable to save anything every month. Needless to say, the author was offended because the host kinda insulted his work on air, especially because that show was being broadcasted live to all of the American population. So, without a word, the author challenged the host to a $100 bet that if he tracked his expenses for seven days, he’d definitely find that he could save more, that even he has latte factor which he could take advantage of. The author gave him one week’s time. After one week, there was no word from the host. So, David decided to call him and when he did call, this was the host’s response – “I was expecting your call. I did as you said. I tracked my expenses and I found something. I was spending $2000 per week eating outside. When I thought about it, it was $8000 a month and was almost $96k per year eating outside. I realized what I could accomplish if I started cutting that down, saving all that money”. No wonder, the author was never invited to that show again.

So, if you look at your everyday expenses hard enough, if you tracked your expenses every day, you will find that you have a latte factor. As I said, you might be spending money on coffee,  it might be on eating out, it might be for watching a movie in a theater every weekend, or it might be going out with your friends to that pricey restaurant and bar. If you tracked your spendings, I bet you can find at least $5 to save every day(if you are an Indian, that comes to around Rs.300 every day).

When I listened to the tape and immediately thought about what my Latte Factor was, I realized that I didn’t have a Latte Factor. I realized that I had a negative latte factor.

Negative Latte Factor? What is that? Well, let me explain.

I start to my office from my home at around 8am. A lot of people working here come in their vehicle. Some people come by car and some come by bike. I come to office in the company bus. The company bus comes to the bus stand nearest to my home and I travel by company bus every day, which is, of course, free of cost. Had I traveled in a bike every day, back and forth 60 kms every day would have cost me 1 litre of petrol every day. That’d come around Rs.100.

I don’t eat outside. Morning first thing I drink the grape juice prepared at home. One kilogram of grapefruit costs around Rs.50 and for that 1 kg, I get around 2 litres of juice (mixed with little water and ice). If I have to go and buy 2 litres of fresh grape juice outside, it would cost me more than Rs.300. I drink 500 ml of grape juice every day, so let’s just say I save Rs.75 on juice everyday.

I take two pairs of peanut butter jelly sandwich toast, freshly cut cucumber mixed with yogurt, for breakfast and dinner. Some days I don’t have a solid breakfast. Some days I have noodles or upma with sprouts.

I get the bread packet for Rs.30 and I will be done with one packet in 2 days. The peanut butter 500 gm pack costs Rs.250. A 500gm pack of pineapple jam costs Rs.100. One bottle each suffices for 21 days. 350 rupees + 315 rupees for 21 days. That’s around Rs. 700 for 21 days just for the sandwich. That’s Rs.35 per day for four pairs of peanut butter toast. Oh, I forgot to say, the bread is whole wheat or multigrain. If I were to go and buy a whole wheat sandwich even from a normal eatery, just one pair would cost me more than Rs.35. So, I save around Rs.100 per day on breakfast and dinner. That’s Rs. 200 per day.

In my office, the World Of Subs and Salads store keeps free salads everyday in the afternoon. One day it’s the pasta+mixed vegetable salad, another day it’s soy+mixed vegetable salad, another day it’s rajma+mixed vegetable salad and like that the menu changes.

So, I eat that for lunch. Most people spend somewhere around Rs.50 – Rs.100 on lunch. Let’s say I am saving Rs. 75 on lunch everyday on average.

I am working on bulking and cutting, and since it’s bulking period, I am trying to follow the GoMad program. That’s a gallon of milk a day. Since drinking a gallon of milk a day would make me severely bloated and disgusted with it (also because I am trying to become a vegan), I chose to go with a litre of milk a day. So, I take four breaks a day consuming 250ml milk/tea every time. Since proper milk is available for free in the office, I don’t spend money on milk either. That’s Rs. 50 saved on milk alone. Since I have tea twice and normal milk twice every day, let’s say I am saving Rs.60 on milk/tea alone. I drink milk once at 9.30 am, the second time around 11.30 am, the third time around 3pm and the fourth time after coming back from work-out, around 6 pm.

At night, as I told, I either don’t have any dinner and just drink some water and go to sleep or I eat a pair of peanut butter sandwich toast. You might ask how I am able to eat it every day, even my parents ask me the same, but the answer to that question is for another post.

So, counting all that I am saving everyday, 100 + 75 + 200 + 75 + 60 = Rs. 510. That’s almost Rs. 500 a day saved by eating at home and utilizing the benefits provided by the company. That comes to Rs.15000 a month. Investing Rs.15000 a month on PF or a mutual fund or even a regular deposit of 10% interest that compounds every year will lead to having Rs. 8,76,33,327 at the end of 40 years. That’s almost 9 crore rupees, 1.5 million in US dollars. Not bad for as simple a thing as eating at home.

So, similar to that, you will also have a latte factor. Find it and consciously work on leveraging that knowledge to become financially smart. No one is asking you to compromise on anything. I am certainly not asking you to starve. I am just telling that you can save more with this knowledge by cutting down on unnecessary unconscious expenses that you make every single day.

Action Items:

Buy a small note. Every day from today, keep an account of whatever you spend money on, for one month. At the end of the one month period, check the note, see the things you have spent money on, find your latte factor and see how much you could have saved in one month. Imagine saving that every month over the next few many years. Calculate the returns after 20 or 30 years. You will be surprised.

The Latte Factor Calculator:

Check out the Latte Factor Calculator and calculate how much you would have in whatever amount of years you want to save for, from today.

Get the book here The Automatic Millionaire by David Bach. Do read the book. I am sure it will get you started on an amazing journey of becoming financially intelligent and smarter than you already are.


What is your latte factor? What did you find out after tracking your expenses? Based on your findings, how much do you think you can save every day? Have you counted that for a year, 10 years, 30 years? Leave your answers down by in the comments! Do you know anyone who could benefit with the knowledge about the latte factor? Do share this article with them.


Photo by Esparta

Photo by Kaythaney

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