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| Beware of the Latte Factor That Slowly Leaks Your Finances |
Tips for successfully managing your finances are not only increasing your income, but also controlling the latte factor or small expenses that can eat away at your income.
Many people have the ambition to "become rich"--live comfortably and have lots of money or assets. To do this, they work hard, change jobs for the sake of increasing income and promotions, and even look for various additional incomes to become rich. Many people focus more on increasing their money, so they can become rich. But usually, the bigger the income, the more expenses.
Latte Factor? What is it?
The term latte factor was popularized by financial expert, David Bach, through his book "The Automatic Millionaire" published in 2005. In 2019, David Bach released a book that focuses on the latte factor with the same title, "The Latte Factor". Since then, this term has become increasingly popular to explain one of the financial problems in this millennial era.'
David Bach uses the word "latte" to highlight the example of people's habit of buying coffee regularly, even though the price can reach tens of thousands of rupiah. According to him, coffee is an expense that seems small, but if done routinely, the total per month can be greater than the cost of electricity and water. Ouch!
However, the latte factor is not just about coffee. This term refers more broadly to various routine purchases--outside of basic necessities--that seem trivial, but can eat away at your personal finances. The reason is, when added up, the total money spent on these small purchases is quite large.
For some people today, this term may be more "appropriate" as "boba factor" because many people often buy boba drinks which are very popular today. Just like coffee, boba drinks are small purchases, but if done often, the amount of expenditure will be large.
There are five "areas" of expenditure that are most often latte factors for many workers, namely:
Coffee
Buying coffee to accompany work has become a lifestyle for workers in big cities. Once you buy coffee, the price is around IDR 50,000. It doesn't seem big compared to your salary, right? Let's calculate again, for example, for four times a week buying coffee, you have spent Rp200,000. In a month, it has been spent Rp800,000. Your income is also used up Rp9,600,000 in a year just for coffee.
Lunch at a restaurant
Lunching out is indeed practical and the menu is also varied.
Order food online
Buying food through an application makes it easy to buy lunch. Practical, saves energy, and time. Save money? Hmmm... you can choose cheap food prices, but pay attention to the additional costs.
Unused services
Movie streaming services, music, cable TV, premium subscriptions for certain applications, and even gym memberships have also become part of the lifestyle of today's urban workers. However, do you really use these services to their full potential? How many movies on these streaming services do you watch? Do you still watch TV often? When do you go to the gym?
Shopping for knick-knacks online
Books, clothes, accessories, stationery, and others are easy to buy online today (if there is a free shipping promo, check it out right away!). However, try checking your shopping history on your favorite marketplace and add up how much you have spent on impulsive online shopping. PINA is sure it is quite large for your house down payment installments.
There are still many other latte factor expenses that we often make. For example, buying bottled water, interbank transfer fees, credit card administration fees, cigarettes, and online public transportation fares. These latte factors seem simple and small, but if collected in just a month, they are quite a lot for savings or investment.
Why is there a Latte Factor?
There are two main things that can cause the latte factor in someone's spending.
Consumptive habits
People like Andre often spend money to fulfill their desires alone, not their needs. For example, buying coffee before work at least once a week. Over time, Andre feels "incomplete" if he doesn't buy a cup of coffee at all. Maybe you think, is it wrong to buy a cup of coffee? After all, the goal is to make yourself happy.
Enjoying life is often a justification for being consumptive. In fact, the effect on happiness is not that great. You may be happy to be able to sip the coffee you just bought. However, after it runs out, does this help your financial condition in the future? Maybe, it can even make you cry in the corner because your expenses have increased without you realizing it and your financial planning is a mess.
Lack of control
Social pressure and weak self-control can also cause the latte factor. When you see people around you who like to buy coffee or hang out at cafes, you will slowly do the same thing in order to maintain friendships. You try to follow the existing lifestyle so as not to be left behind by the trends around you--in other words, FOMO (fear of missing out)!
You end up blaming the environment for being wasteful. In fact, you actually have full control over managing your finances. You can create a budget to manage all your income and expenses, including for fun expenses or future investments.
What Can You Do?
Every problem has a solution. However, when there is a problem when planning personal finances, David Bach's advice is not to immediately look for additional income. Because, once you have more income, a person's expenses will actually increase too.
Track expenses
The first step is to find your latte factor - or maybe for you it's your boba factor - all this time. Everyone may have a different latte factor. In the book "The Automatic Millionaire", David Bach gives an example of how to determine the latte factor, namely:
a. Record every expense every day - be it small or large purchases.
b. Write it in a table like the example below. Then, do a review to see which expenses can actually be cut, because that's the latte factor.
Pay yourself first
As soon as you receive your monthly salary, pay yourself first. Maybe what comes to your mind when you hear the words "pay yourself" is spending money for your own pleasure. Nope! Paying yourself first means saving money for yourself first.
Often, as soon as you receive your income, what you do is pay bills and shop, then save money--if there is any left. In other words, you pay other people first, then yourself. As a result, you feel like you have nothing--always short of money--because you are busy building other people's wealth and not your own. This is not a wise way to manage your finances.
So, how much should you pay yourself? David Bach suggests a certain amount of your pay for one hour every day. However, if you are confused about calculating how much you are paid per hour, just estimate the amount of money you can save per day.
Automation
Another challenge that is often faced is getting used to setting aside money every day or per month. At first you may still be enthusiastic, but over time (pretending) you forget to save the money. The solution is to set aside the money automatically.
For example, if you set aside money by investing in mutual funds, as soon as your salary comes in, ask your investment manager to immediately deduct the monthly capital from that income. It takes zero discipline, zero self-control, zero willpower. However, you can already invest every month and apply better financial management tips.
Live rich...now!
Finally, after reducing the latte factor and starting to save or invest, David Bach suggests living your life feeling rich right now. Right now, yes, today. Not tomorrow, the day after tomorrow, next week, or even next year. Also, remember, living rich doesn't mean having and spending a lot of money, but being free to do whatever you want to do. Want to travel? Want to learn a foreign language? Want to learn to paint? Go ahead!
Without making small purchases or the latte factor often, you can focus your time and energy on doing things you like and want to do. You will be amazed that your life is richer than you imagined.
Minimizing the latte factor doesn't mean forbidding yourself from using money. Go ahead and buy coffee, eat at restaurants, buy new clothes. However, do it in moderation a.k.a. according to the budget you have planned. Then, find another idea so you can still enjoy these things, but in a more economical way. For example, replace buying coffee with making your own coffee, bring your own lunch, go to a cafe once a month or when you have a meeting, and bring your own water bottle. Carefully calculate every latte factor when you plan your finances. What you need to be rich is to control these small expenses. By really calculating it and changing your consumer habits just a little, you can change your future. In small expenses lies big power.