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.

Finally, if this free calculator helped you then please give a like, tweet, or +1 to support our efforts. Thanks for helping out!

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:

The Latte Factor – Explained

It’s a common mistake that most people make.

They believe small amounts of spending don’t matter. After all, who cares about $5 here and there. It is too small to worry about, right?


Ignoring periodic, small spending is a serious mistake that can cost you a fortune. Small habitual spending done with consistency over time is just as important as big-ticket spending items, and this Latte Factor Calculator proves it. The truth is it all adds up.

David Bach popularized the term “latte factor” to represent these small spending habits.  The term was derived from the latte coffee because daily coffee habits are a prime example of our unconscious spending that usually adds little value to our lives.

When you use the latte factor calculator, you will be shocked to find out how much you are wasting by spending $2-$5 daily over a period of 10-20 years. The small, daily amounts add up to extremely large sums over time that defies intuition. The latte factor teaches us how much money we could save by paying attention to habitual, unconscious spending.

How Many “Latte Factors” Do You Have?

The latte factor shows up in many ways. This is about much more than just coffee.

You could be eating lunch out everyday consuming fast food for convenience, smoking cigarettes, or subscribing to magazines and newspapers that you don’t read. Even wasteful ATM and banking convenience fees count.

Another form of latte factor is buying expensive, name-brand products instead of comparable generic products that give you the same value.

Any time you waste money on periodic, regular spending it qualifies as a “latte factor”.

Does The Latte Factor Require Sacrifice?

Many people enjoy a good cup of daily coffee and don’t want to give it up. Fortunately, you don’t have to.

Just be smart instead. Figure out how to get the same value for far less money. For example,  you could brew a pot of your favorite coffee each morning (heck, you could even buy Starbuck’s beans) and take it with you rather than buy individual cups of coffee throughout the day.

The goal of the latte factor is not to take the fun out of your life. Instead, use it to make better decisions about your money by weighing your needs against your wants and focusing on getting great value instead of just spending your money blindly.

It is about conscious spending – not sacrifice.

The Latte Factor Calculation

Once you’ve identified a latte factor (or two) in your life then it is time to calculate how much it is costing you each year, and how much you can save in the long run by eliminating it. Fortunately, the latte factor calculator above makes the complicated math point-and-click easy.

Make sure to include in your calculation all related costs. For example, include the tax and tip with the price of the coffee. Also include the amount you spend on gas and other auto costs to get to and from the location along with other incidentals like the little pastry you buy or other treats. These details really add up – both in the calculator and real life.

The Surprising Truth

What you will discover when calculating your latte factor is the biggest cost of periodic, wasteful spending is not the money you wasted but the forgone earnings of that money compounded over many years.

That is why most people mistakenly believe these wasteful spending habits don’t matter. They falsely believe it is just 5 bucks when it isn’t. It is the lost opportunity to grow that 5 dollars into 10, then 20, then 50, and finally 500 that really matters.

The forgone interest is the surprising truth behind the latter factor that can literally make or break your wealth.

Term Definitions

  • Amount – The money you spent for regular but unnecessary expenditures.
  • Frequency – How often do you spend it? It might be daily, weekly, monthly or yearly.
  • Annual Return On Investment – Annual return on investment (%) you could earn if the money were invested rather than spent.
  • Life Expectancy – The number of years you would like to estimate your growth. I suggest assuming age 90 or 100.
  • Forgone Interest Earning – The money you could have earned if you invested the money rather than spent it.
  • Real Cost of Expenditure – The real cost of your unnecessary spending.

Spending Discipline

The latte factor may not make you rich, but it is a way to bring discipline to your spending that can save you a whole lot of money. There is no magic answer to personal finance, but eliminating unnecessary, repetitive expenses is a smart step toward saving more money. I hope this calculator helps you.

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