Barbara Daroca: The Latte Factor

Have you read anything published by David Bach, one of America’s bestselling financial authors?

He claims that “all you need to do to finish rich is to look at the small things you spend your money on every day” and instead put that money aside. I am not a firm believer of this principle – I don’t think the ultimate goal always needs to be “finish rich” – yet I agree with the fact that we often don’t realise the myriad of little purchases we do on a daily basis.

Here’s where his by-now famous The Latte Factor® comes in. Imagine if instead of spending every day in a working week €4 on a premium brand café latte (that makes €20 per week) you were to put that in a fund with an annual yield of 5% and compounded interest. This investment would help you save up to €19,282 in 10 years and €50,690 in 20 years. Try it yourself with the Latte Factor calculator (!

The point here is not to stop drinking coffee. Or going out for a beer with colleagues towards the end of the week. What David explains is that even the smallest amounts put aside on a weekly/monthly basis in investment funds and retirement plans can help us build our wealth. It is a modern version of The Grasshopper and the ants tale: it’s important to put aside some of what we have now, even if that means we must sacrifice a little, in order to have something when we truly need it.

It doesn’t have to be leisure items like coffee, beer or holidays. At ING we always advise to build up your savings in such a way that they don’t become a burden or a dreary task! Be smart about your choices (you can read this article for guidance (“8 tips on how to create a budget”). Maybe you can save a little in your commute, your car insurance or your mobile devices instead. And once you have figured out how much you can put aside regularly, what better way than to set up an automatic plan such as Invest Plan?

And always take into account inflation (“Inflation: will you be a winner or a loser?”)! We’re talking long term investments, so €50,000 in 20 years will not have the same purchasing power as they do today. Seek advice if you hesitate which investment suits you best – but don’t hesitate to start investing now!