Have you read the popular personal finance book ‘The Automatic Millionaire’ by David Bach?
One interesting concept in the book is the ‘Latte Factor’.
What is the Latte Factor?
It basically emphasizes on how a foundation of our personal wealth comes from taking care of small expenses like Latte over time.
It’s actually not a new concept. It’s more of a new version of piggy bank saving. And we’re familiar with piggy bank since childhood days.
The latte factor is to make us realize the power of little yet periodic savings, and the magic of compound interest.
However, let us see how Latte Factor works in Bhutanese context keeping our popular habit of doma eating in focus.
How Doma can be the Bhutanese Version of Latte Factor
Drinking coffee isn’t that popular in Bhutanese culture. The closest to David Bach’s Latte would be Doma for us.
Just like how David explains it, let us see how eating doma impacts our personal finance.
When I eat doma, most of the times I spend Nu.50 daily. Let me keep Nu.50 as an average. So, it’s Nu.250 weekly, Nu.1,500 monthly and Nu.18,000 yearly!
It’ll be Nu.576,000 by my retirement age of 55 if I start eating doma at 23. Looking at this, isn’t eating doma quite an expensive thing?
Nu.1,500 monthly is higher than the premium of 5 lac millennium Education Plan. Eating doma isn’t cheap.
If I put into BNB’s Recurring Account, it’s Nu.1.34 million on my 55th birthday!
If I invest in stock market, that Nu.18,000 can purchase about 525 BNBL shares and 1088 shares of Dungsum Polymers at their current market prices.
Some Criticisms on David Bach’s concept of Latte Factor
Unlike latte, doma has many negative health effects. From that parlance, stopping doma and saving that same amount is like killing two birds with one stone.
But the Latte Factor of David also received criticisms. People call it a ‘penny-wise, pound-foolish’ concept.
They argue it discredits other important factors of building wealth.
It also assumes people will honestly save or invest the amount. It’s observed otherwise in the real world.
People argue that if latte gives joy, we don’t need a reason to tell someone to give it up and snatch their little joys.
What will be my personal Conclusion of the Latte Factor
I feel it’s another good method to explain the importance of periodic saving and magic of compound interest.
However, being one of the methods, I feel we shouldn’t take it as a fit-all and end-all factor in building our wealth.
Ramit Sethi has said it the best on this:
Make the right decisions in life so you don’t have to worry about saving $3 a day on lattes.
We must have priorities and strategies in place to capture big wins and avoid big losses.
If our building’s roof is leaking, our focus shouldn’t be only on wall cracks. Saving daily latte won’t make sense if we’re blind about bigger expense like rent.
However, it deserves our attention. Sometimes it’s good to check our regular little expense and assure they make a financial sense.
What would be your ‘Latte Factor’ kind of expense? Did you calculate how much you’ll be spending on it when you hit retirement?
