The 'Latte Factor®' ...

Latte Factor (LAT.ay fak.tur) n. Seemingly insignificant daily purchases that add up to a significant amount of money over time.

The Latte Factor® is perhaps a concept that isn't foreign to you. It was a concept coined by David Bach, author of The Automatic Millionaire. The Latte Factor® is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself (as opposed to the more common approach of trying to cut 'big' items from your life OR SIMPLY DOING NOTHING) . Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, fast food, cigarettes, [plug in whatever your "personal latte" is here] and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.

If you take a closer look at your 'small spending,' you can quickly see the great cost of those small habits. Investing a small habit (such as $5/day, at historical rates of return, ~10%) would yield close to a million dollars in roughly 40 years!

What's your Latte Factor®? Take action!
To get started, identify what your Latte Factor® is. The most beneficial way to do this is to track your spending for a full day. I've provided some links below to assist in the process ... Once you know where your money is going and how much your Latte Factor® is costing you, use the calculator below to see just how much you could save in a few years. You'll be amazed at how much you could be saving.

Even if you make a lot of money, it doesn't necessarily mean you're building wealth. That's because the more we make, the more we tend to spend. I believe that an awareness of our personal Latte Factor® will only help down our paths to "Financial Success" ...


Useful Resources:
- 'Fix the Leak in your Wallet' (USA Today Article)
- Latte Factor® Calculator
- Latte Factor® Worksheet - What is your Latte Factor Worth?
- OFS Budgeting Resources
- Stop Buying Expensive Coffee and Save Calculator

Graduate Plus vs. Private Loans

For college students, there is little argument that the first line of financing education should be Federal Stafford Loans (obviously after all "free" sources have been exhausted - grants, scholarships, etc.). For an ever-growing number of students, the amount they're able to borrow in Federal Loans has been insufficient to meet their educational costs - the result? A 700% increase in private loan volume between 1995 and 2004 (according to College Board).

A recent tip (see blog tip archive to read) outlined the substantive changes to student loan legislation that took place on July 1 (2006). One of the primary [good] changes for graduate and professional students was the introduction of the Grad PLUS Loan, allowing grad/professional students to borrow up to the total cost of education with this type of loan (ultimately eliminating the need to take out [typically] higher-cost private loans unless specifically chosen). PLUS loans had initially only been available to parents of undergraduate students. One of the benefits of the new Grad PLUS Loan is the fixed rate it offers (8.5% for most -- 7.9% for Direct Loan-provided Grad PLUS Loans). A fixed rate is a huge sigh of relief relative to the variable rate that private [credit-based] loans provide (with many currently topping 9% with interest rate caps (if they even have a cap) of 20% OR MORE!). Obviously, you should speak with someone that can inform you of your options relative to your individual circumstances before making loan decisions.

Several sites provide helpful charts/breakdowns of the primary differences between Grad PLUS and Private Loans. Some of these include:

- Ed America
- Texas Guaranteed Student Loan Corp
- University of Minnesota Financial Aid
- USA Today Article on 8/15

If you feel that a private loan is necessary, view this former tip on selecting the best possible loan for you.