The Automatic Millionaire, written by David Bach is one of my favourite books on personal finance. I highly recommend the Canadian edition. Bach is the founder of The Latte Factor®. You’ve probably heard it a thousand times. Those small indulgences add up over time.

Just for fun and for purely research purposes I took a little trip down to my local Starbucks. I’m partial to cappuccinos but for this purpose, I thought it best to order a tall latte. The grand total including tax was $3.26 Based on the assumption that I might buy one 5 days a week on my way to work, that’s $16.30 a week or $847.60 a year if I went 5 days a week, 52 weeks of the year. $847.60 a year invested over the next 10 years at a conservative 5% would turn into $10,661. Over 20 years the grand total would be $28,040! That’s a lot of money.

Every day we spend money on little things that give us pleasure. There is nothing wrong with spending money on things you enjoy. In fact, I’d encourage you occasionally to spend more money on things you enjoy. You may find that it increases your quality of life. Buying a latte each and every morning does nothing for me. Yet, if it really adds something to someone else’s life, who am I to discourage them to cut back.

Three of my favourite things are Thai food, music and movies. In fact, I could spend every Friday night eating out at my favourite Thai restaurant followed by live concert or film festival. I could do the math on it and realize that if I saved the amount I spend on Thai food, music and movies, invested at 5% over my life I’d have a lot more money. I’d also have a lot less pleasure. I also like books and I don’t always get them at the library (gasp!).

I wonder sometimes if we’ve been focusing too much on the little savings when sometimes it’s the little things that bring joy to our lives.

Here are 6 relatively painless ways you can bring the latte (or whatever small indulgence you’d like) back in your life.

  1. Cut cable if you don’t watch much TV. Basic cable with Rogers is $37.82 after taxes in my area. If you have the movie network or rent a PVR, the savings will be even higher.
  2. Clean your own house or mow your own lawn. Which would you rather have, the latte or help around the house? Me? I’d rather have the help which is why I make my own coffee and hire someone else to shovel our sidewalk.
  3. Cancel things you don’t use. Have a gym membership that you never use? A newspaper subscription that you hardly get around to reading? A shopping membership to a place you never go? Take the time to review your monthly payments and cancel what you don’t use.
  4. Cut back on fees. Switch to a no fee credit card and no fee banking. You’ll have plenty of pain free extra money for small indulgences.
  5. Compare car insurance rates. When I took the time to call around and compare insurance rates, I was shocked at the difference. It took a couple of hours to make all the calls and give all the information they needed. In the end we saved over $350 a year by switching.
  6. Pay off credit cards. Do the math on how much you pay in interest payments each month. For many people, they are stunned when they add it all up. It’s motivating to get it paid off sooner when people consider the true cost of things purchased on credit. It’s that much extra money in your pocket each month to do with as you wish. I’d rather have a latte than pay my bank more money for something I bought last year.

There is nothing inherently wrong with lattes. Bach had it right when he wanted us to be conscious of our spending. By tracking the little expenses we have the opportunity to reflect on whether our money is being spend where we want it to go. Be careful though that you don’t remove all of life’s little pleasures in the name of being frugal. Life is for living and it’s difficult to live a full life when counting the cost of every little indulgence.

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

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