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There is a biggest misconception in the minds of many people today. Wealth is defined as how much income we have. In reality, wealth is related to our spending habits, especially for small things. Because of this, David Bach, a financial writer, gave an easy-to-remember term for this phenomenon, namely latte factor.
In his book entitled "The Latte Factor", Bach describes the latte factor as a small expense that people often spend here and there without realizing it. The concept is simple, a small amount of money spent regularly makes it much more expensive than we can imagine.
The term comes from the idea of a coffee habit, where if we add up the cost of a cup of latte per day and invest it, we can build significant wealth faster.
So, according to the book, these small costs can be used as a source of funds to meet urgent needs, such as buying insurance, emergency funds, and others. To apply this latte factor concept, we have to track what expenses make us wasteful during the month.
There are at least 5 small expenses that people most commonly make, which make them wasteful.
1. Eat Out
According to the 2015 Global Generational Lifestyle Report study from Nielsen, which was conducted in 60 countries, it shows that millennials like to eat outside or dine out. The millennial generation's portion of eating out is 58% compared to baby boomers which is only 29%.
Indeed, we rarely calculate the cost of food, especially since it is everyone's main need. Let's try now to calculate the cost of eating at a restaurant in the mall, not to mention the habit of ordering food delivery for snacking. We never make all our food and drink purchases on the same day. But over the course of 30 days, those purchases will continue to add up and the costs will become large.
2. Coffee
There is no doubt that coffee plays an important role for office workers wherever they are. Working from home, far from coffee shops, means people often order coffee via delivery applications. Just look, the liter of coffee phenomenon indicates that the demand for coffee consumption is getting bigger in the world.
Rarely do we realize how much money we actually spend on these coffee drinks.
Buying your favorite coffee doesn't seem like a significant expense for many people. However, if $1 - $2 is spent a day on coffee, in a month we spend $100 to $200.
3. Books and Magazines
Reading is important. We all agree to encourage everyone to read more often. But if you are an active reader, you may not realize how much money is spent on books and magazines.
The nominal value for purchasing books is often small, but if it is consistent, it will have an impact on your income. Often, many people are surprised how much of their income is spent there.
4. Subscription Application Fees
Do you use a subscription service to watch movies or listen to music?
Paying a subscription fee of $5-$10 per month may seem small. However, many of us rarely use these online streaming applications, but constantly pay for them via credit card.
Now think again about which apps you can actually use more often. If in a month, you only open it 1-2 times, that's a sign that you should immediately deactivate your subscription to the application.
5. Transfer Fee
Whether you realize it or not, digitalization makes transferring money very easy via smartphone. But unfortunately, there is a fee that must be paid for this convenience. And this is also included in the latte factor.
In one transfer between banks, our money is usually deducted for administration. Imagine if you had to transfer 5-10 times every day. Try calculating these expenses in a month, of course you will realize how much money you lost for nothing.
Currently, there are several applications that provide free interbank transfer fees. In fact, some banks also provide free transfer facilities with the condition that you have to have a certain amount of funds deposited in your account.