Sunday, February 03, 2008

Become a millionaire with the Latte Factor

That small sum you spend each day in small pleasures of life, such as complementing your lunch with a beverage, or snacks and latte in the evening, or even calls on your cellphone is what tends to snowball into a huge amount that gets torn out of your savings each month.

Consider, for instance, the following representative figures:

Latte at the coffee-shop: Rs 30
A cold drink: Rs 20
Mobile phone usage: Rs 20
Samosas, biscuits, crisps or other snacks: Rs 40

This sum of Rs 110 a day amounts to Rs 3300 every month and in a year, about Rs 40,000.
And if one saves this Rs 110 every day, one could become a millionaire over the next 30 years.
The way to make that come true is to work on the Latte Factor.

The term, coined by David Bach, is named after the coffee which you buy at the neighbourhood cafe, instead of putting aside that money for a rainy day. Bach sums up in monetary terms the things people are addicted to, so you simply add up the cost of small expenses, such as lattes at a coffee shop, to see what they amount to.For more and more people, these small indulgences are becoming tantamount to an addiction. Psychologist Bhawna Bamr says, "It's addiction where we feel pride in possessing things which others don't have." She adds that shopping gives her that vicarious pleasure. The Latte Factor shows that we often have way more money than we think; it's just that bit by bit we spend it on a lot of small things. The way to combat this startling outflow is to keep track of small expenses.

"Maintain a daily diary on what all you have on today," says psychologist Vaid Jain. "That expenditure will soon lessen." A good thumb-rule is calculating small expenses sedulously. If it comes to more than 10 per cent of your salary, then it's time to crack the whip on your spending habits.

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