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Save $5 on a coffee a day, retire a multi-millionaire.
Popularized by financial gurus like Suzie Orman, Dave Ramsey, and David Bach, the “latte factor” is something I’m pretty sure you’ve all heard of.
But for those who haven’t, the “latte factor” is the idea that cutting out the small purchases (like lattes), and investing that money over time, will give you a big fat retirement nest egg.
Sounds ludicrous? That’s what I thought too.
I mean, c’mon. People LOVE their coffee. When your boss is droning on about TPS reports or whatever other office bullshit…the only thing keeping you from face-planting into puddle of your own drool is that sweet sweet blackened nectar of the Gods. Starbucks Gods that is.
And then there’s also the math. When it comes right down to it, the math just doesn’t add up.
How exactly does $5 compound into a million? If you take $5/day, multiple it by 250 working days, compound that over 35 years at 6% return, you get $140,000, which is A LOT, but isn’t close to a million.
So why would we give up something we love so much for a seemingly unworthy gain? Why would we give into the ‘latte factor’?
Because it works.
Now, before you run off to grab your pitchforks and torches, let me tell you a story…
Back in 2010, a man by the name of Dave Brailsford was offered his dream job.
You see, ever since the ripe age of 19, Brailsford had a dream. A dream to join Team Sky, the elite British cycling team, so he could ride his way to “Tour De France” victory.
Starry-eyed and bushy tailed, he left his cushy draughtsman job (whatever the Bloody Hell THAT is) in Deiniolen, England, and moved to St-Etienne, France, without speaking a word of French, just so he could train to become a cycling champion.
The bad news is that he never realized his cycling champion dream. The good news is that during those gruelling 3 years, he discovered that his true passion wasn’t actually cycling. No, what Dave really loved was: Sports Sciences.
And once he got his degree and worked in the industry, he was asked to join Team Sky after all–but not as a cyclist. He was going to get Team Sky their long awaited “Tour de France” victory by coaching instead.
And when other coaches, journalists, and even his own team members laughed at him–especially since no British cyclist has EVER won the Tour de France, let alone win it in less than 5 years–Brailsford simply shrugged it off.
Instead he got to work. First he looked at their fitness regimens. Then their diets. And finally their sleep schedule. And when that was done, he went even further. He looked at their seat ergonomics. He looked at their hotel pillows. He looked at the quality of the massage oil in their spas. He even looked at the their hand sanitizers and hand washing techniques. He looked for small improvements everywhere, like a carpenter ant, foraging for every leaf and dust particle he could find, giving his team every advantage and leaving no stone unturned (and I mean that literally because he even looked at the gravel under their bikes).
And when people scoffed at him, saying his team will never win the Tour de France in 5 years, he smiled and told them they were right.
They would win it in 3.
And not only that, they would take home 70% of the gold metals at a little known competition called “The Olympics”, and repeat their “Tour de France” victory the following year.
And when his skeptics watched, stunned as his team stood on the stage holding their medals, Brailsford felt like he was on top of the world.
Great story, right? But what exactly, does that have to do with coffee?
Well, Brailsford realized his “Tour de France” dream because of the hundreds of small changes he made.
From the pillows, to the massage oil, to the hand sanitizer, to the gravel, nothing was safe from Brailsford’s tornado of efficiency.
Small changes matter. But it’s not just the changes themselves. It’s the fact that Brailsford cared so much about Team Sky that he was willing to optimize even the tiniest things, just to give his team that extra edge.
The same goes for people who save money by not buying coffee. It’s not the coffee savings, it’s the fact that they care SO much about becoming financially independent, they’re even willing to cut the coffee.
And this is what we did. We started off with the small things too, like cutting out daily coffees, going to the library instead of buying books, eating out less. But as we grew more confident that the small things were adding up, we started to look at optimizing other things in our lives.
We started researching into the best credit cards (no fees, bonus rewards + insurance), the least expensive ways to travel (frequent flyer miles + 2 for 1 deals to attractions), the gyms with the most value (open the longest, with the least expensive fees), the best recipes with healthy yet inexpensive ingredients, etc. The list goes on.
Over time, all the small things added up. Because we optimized in every area we could think of, we managed to reach our goal within 9 years and retire at the age of 31.
We’re not geniuses. And neither was Brailsford. We were just willing to make a large number of small changes, which added up over time, so we could achieve our goals. The small things didn’t matter. Reaching the goal did.
So the next time you’re standing in line at Starbucks, think about it. Are you willing to do whatever it takes to become financially independent? Are you willing to give into the”latte factor”?