How Small Expenses Like Coffee and Candy Could Cost You Over $1,000,000
Over $1,000,000 on coffee and candy?! It sounds unbelievable, but as David Bach famously said,
“It’s the latte factor.”
Bach’s "Latte Factor" explains how small, everyday purchases—like a latte or a pack of gum—can add up to significant amounts over time, hindering our ability to save and invest. The idea is that by cutting out these seemingly insignificant expenses, you can accumulate substantial financial wealth over time.
As Benjamin Franklin wisely put it,
“Beware of little expenses; a small leak will sink a great ship.”
Tracking My Impulsive Purchases
Last week, I decided to put this theory to the test by tracking my impulsive purchases—items that weren’t part of my usual budget, like groceries or bills. This included things like a pack of gum, a (decaf) salted caramel crème cold brew from Starbucks, and fifteen ring pops for the last game of the 4th-grade girl’s lacrosse team I coach. Some days I spent more, other days less, but my average daily spending over the week was $9.
To be clear, these were all non-essential items (although, the 4th graders might disagree on the ring pops, and that cold brew definitely felt essential at the time).
The Real Cost of Small Daily Expenses
Curious about how much these small expenses could really add up to, I plugged the numbers into a Time Value of Money (TVM) calculator to see what $9 per day, invested at a 7% annual return, would grow into over 45 years (from age 20 to 65).
Here’s the kicker: Over $1,000,000 on coffee and candy!
That’s right—those little daily indulgences can add up to over $1,000,000 in lost financial wealth if you were to invest that money instead.
Why This Matters for Financial Literacy
Tracking your own impulsive expenses for a week could reveal your hidden millionaire potential. It’s not about denying yourself every small pleasure, but understanding the power of compounding and how even small sums can grow into something huge over time. This is a key concept in personal financial literacy and financial literacy education—one that could change your entire perspective on spending.
By becoming aware of where your money goes, you can redirect even a portion of those daily expenses into something more beneficial, like an investment account or a high-yield savings account. Small adjustments in spending can lead to big results in financial wellness.
Try It for Yourself
Use the TVM calculator to track your own impulsive spending for a week. You might be surprised at the potential long-term value you’re missing out on. Who knows, maybe you’ll discover your hidden millionaire potential too!
*The TVM calculator can be tricky. My inputs were to calculate for FV (future value), with a PV (present value) of $0, an interest rate of 0.0192% (7% annual divided by 365), 16,425 periods (365 x 45 years), and $9 per day. Excel works great for this too!
Questions, thoughts, or curious about another topic?
Email us at casey@your-orchard.com! We’re here to help you build your financial literacy and reach your full potential.