Why The Latte Factor Doesn't Work For Me

There have been a couple of good posts lately about David Bach's idea of "the latte factor"--I'm sure you've heard of it, but just in case, it's the idea that cutting down on little expenses here and there can save you a ton of money.

The reason it doesn't work for me is quite simple and pragmatic:

I work from a budget ("spending plan," if you prefer). I budget money for savings at the beginning of each month. That means when I skip a titular latte (bad example--I've cut out Starbucks pretty much entirely; better example: when I bring my lunch from home instead of buying it) I don't "save" money. I can't go ahead and move the $6 price differential between bought and brought lunch into my savings account, because I still have a week (or whatever) to get through on my budget. I just have more money to spend in this category later.

Theoretically, if I brought my lunch from home every day, I'd end up with excess money in the "Work Lunches" line item--this much is true. I would also, however, probably overspend in the "Groceries" category. If that became a habit, I'd adjust my "Groceries" line item up somewhat, and my "Work Lunches" down somewhat and either add the excess to some other line item that needs it or--yes--to the "Savings" category. So while in the short term the "latte factor" might be able to save me $40 or something, in the long run, it's just a gimmicky catchphrase for the not-so-catchy "frugal habits save you money" maxim. But by knowing your own habits and planning for them (as well as maybe pushing them a little towards the frugal end of the spectrum), you can make your savings consistent and substantial.