Latte Factor Calculator

The Surprisingly High Cost Of Small Periodic Spending

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 where your retirement savings is going.

What you will notice is the true cost of spending is the forgone interest earnings compounded over many years – not the actual money spent.

A few things to keep in mind:

  • Consider using 10% 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 account for inflation.
  • Forgone interest is compounded on a monthly basis and forgone purchases are invested at the end of each spending period.

Enter the dollar amount of any regular but unnecessary expenditure:

How often do you normally make this expenditure?
every

Enter the annual interest rate (%) you feel you could earn if you were to invest the money rather than spend it:

Enter the number of years you would like to calculate the opportunity costs for:

Total dollars that will be spent:

Forgone interest earnings:

Real cost of expenditure:


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