Latte Factor Calculator
 
 

Latte Factor Calculator

David Bach popularized the term "Latte Factor" to symbolize the high cost of small, periodic spending. It is why Starbucks is rich and you are not. For example, just input $5 daily for fancy coffee over a period of 40 years at 10% and see what happens. You'll be shocked. Now add in the magazines you don't read, eating lunch out for convenience, the boat you don't use, the storage locker fees to hold your junk, and so on... Now you know why saving money can seem so difficult.

What you will notice is the true cost of spending is the forgone interest earnings compounded over many years - not the actual money spent. Few people really understand this.

A few things to keep in mind:

  • Consider using 8% to approximate the historical long-term return on stocks.
  • If you invest your savings in paying off high interest debt, you could earn an even better return.
  • Be sure to include any sales taxes that might apply when entering expenditure amounts.
  • Some items you buy come with additional costs of ownership -- such as repair and maintenance costs, operating costs (gas, electricity, etc.), insurance costs, storage costs, etc..
  • The calculations do not adjust for inflation.
  • Forgone interest is compounded on a monthly basis and forgone purchases are invested at the end of each spending period.
  • If you want to figure the true cost of a one time expense (instead of periodic) use this Spending Calculator.
Enter the dollar amount of any regular but unnecessary expenditure:
How often do you normally spend this money? every 
Enter the annual return on investment (%) you could earn if the money were invested rather than spent:
Enter the number of years you would like to estimate for growth (life expectancy?):
Total dollars that will be spent:
Forgone interest earnings:
Real cost of expenditure:

 






If this page helped you then please let your friends know about it also with a like, tweet, or +1. Thanks for sharing...