Most people believe that the secret to getting rich is all about finding new ways of increasing their income as quickly as possible. "If only I could make more money," they declare, "I'd be rich." (page 31)
Chapter two of David Bach's The Automatic Millionaire takes aim at our wallets; or, more precisely, how we spend what is in those wallets.
Maybe nothing from this book, or from Bach's entire system, is more famous than "The Latte Factor." Subtitled Becoming an Automatic Millionaire on Just a Few Dollars a Day, chapter two shows the reader how little decisions can cost us BIG when it comes to retirement.
Many times building wealth isn't about making more money; it's about avoiding spending what you already make. That's one of the reasons we have several articles on this blog about living a frugal life.
But, really, that $5 you spend on snacks every day isn't hurting you, is it?
To put it mildly, yes it is! If you saved $5 each day, instead of spending it on snacks (or cigarettes or coffee or whatever), and you invested it for 40 years, you would have around...
Still enjoying that Starbucks latte?
The simple point is that, if we will make decisions about the small things in our lives, the big things will usually take care of themselves. If you find yourself thinking, "I don't have any money left over to pay off debts [or invest for retirement]," then you need to look at your budget and really think about your spending habits.
Do you insist on having name-brand clothes? Must you have the name brand food items from the grocery store on all items? Do you buy a soda and candy bar at break time? Do you have the largest "package" on your cable or satellite TV?
If you do any of these (or other similar things), you may be costing yourself a huge retirement.
Near the end of the chapter, the reader is taught to track his/her spending for a day (or a week). Track every penny. You may be surprised where your money actually goes. Even if you have a written budget, this is a worthwhile exercise. It helps you truly understand if you are sticking to that budget, or if the budget--or your spending--needs to be altered.
What is your latte factor? How can you change it, so you can pay off debts and retire comfortably?