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Forget Latte Factor, Focus on Big Ticket Savings (Or Not!)

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The Latte Factor was a cute concept, but honestly it’s a bit of a joke. Sure, it’s important to highlight how much you’d save if you were to cut out some of the small things that aren’t that important so that you could enjoy the big things, but it’s kind of like cutting costs on wedding invitations and favors without taking the knife to the reception hall costs – you’re really just quibbling over dimes when you should be looking at the dollars.

In the latest article by Walter Updegrave, he points out 3 big areas where you can consider cutting costs to save a whopping four hundred thousand dollars (really, it’s you save a smaller amount and it compounds, but $400k is a nice fat numbers). While I don’t agree with all of them, I certainly think they’re worth thinking about anyway. Also, one thing to take note of, there really isn’t much substantiation with some of these suggestions so you’re really just talking Walter at his word and his estimates in terms of how much you’ll truly “save.”

Drive less expensive cars during your lifetime: $180,000

I’m not a car guy. My first car was a silver 2000 Acura Integra and I loved it, then someone who couldn’t tell red from green totaled it. My second car, my current car, is a 2003 Toyota Celica; both were purchased at a very good price on eBay (check out my eBay guide to buying cars). I see cars as a way to get from home to work to home to wherever else I need to go and I only want good gas mileage. I don’t need a sick sound system or a ridiculous 0 to 60 time, I just need a reliable car with good gas mileage and Toyota’s and Acura’s fit the bill. If you go with a cheaper car, Walter estimates you’ll save $180k. Now, are you a car guy or gal? Maybe this is important to you and it will make you happy… happiness > money in my book.

Send your child to a public (not private) university: $164,000

I went to a private school that cost approximately $30,000 each year and I work beside people who went to public schools who paid far less. Would I have achieved what I have thus achieved without having gone to Carnegie Mellon University? No, but I do know that I did achieve what I have achieved and I did go to Carnegie Mellon, which is good enough for me. There is absolutely nothing wrong with going to a public school, saving the estimated $164k, because a private school is not necessarily “better.” However, to say that anyone can get the same results by going to a public school as by going to a private school is misleading. It’s quite possible that if I went to a public school I wouldn’t be where I am today. It’s very possible.

Cut vacation spending by $1,000 a year: $122,000

I love vacations. Please refer to happiness > money above. :)

Enjoy the weekend!

Source: CNN Money

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11 Responses to “Forget Latte Factor, Focus on Big Ticket Savings (Or Not!)”

  1. jpsfranks says:

    It’s strange to say that lattes are no big deal but then suggest shaving $1k/year off vacation expenses. Anyone who buys a Starbucks latte every day is spending $1k easy. Given the choice between an extra $1k on a vacation and overpriced coffee, I know which one I would (and do) pick.

    Regarding public vs. private university, I think the article was targeted at parents who are struggling to save for retirement. For such people, I totally agree with him. Plan for in-state public tuition. Then let your child decide if private school is worth it. If they think it is, let them foot the added $164k cost (although that number seems a bit high to me).

  2. Paul says:

    I think that there is a valid point in considering the trade offs in what you do. Something to consider is that money that you save when you are younger (i.e. in your 20s) has a much bigger impact in the long term than money you save when you are older. If you save $2000 this year because you buy a used 2003 Corolla rather than a used 2003 Celica, the impact on your retirement goals will be much bigger than if you do the same in your 40s. So you might consider penny pinching in your younger years and being less so as you get older especially if what you achieve exceeds your goals. That does mean that if you buy that Corolla today and die tomorrow, you would have spent your life unhappily driving an econo-box and you would have never been able to drive that Celica :-( I do know a couple of people who work and live close to or in downtown and don’t drive. They do save bundles of money. I could never do that.

    Assuming that you are paying for your childen’s college education (not everyone does). There are many factors in deciding schools and I personally don’t think it should be driven by private versus public. (If you can’t afford the private schools that is one thing, but I think to say that a private school is better than a public one is being a bit too general.) Big name schools can also open doors. A law degree from Harvard opens alot more doors than one from a state school (at least that’s the input I get from some of my friends who are lawyers). Private schools can also provide smaller classes and more individual attention. However, many public institutions have excellent programs that rival the private schools. University of Virginia has an excellent English department; University of California at Berkeley has one of the premier Chemistry programs, etc. The goals of your children also come into play. If you kid wants to be a high school teacher, is the fact that the school is public or private so important?

  3. Jimmy says:

    So you went to Carnegie Mellon University, which I guess is some high-priced school, but you never learned that an apostrophe is used for indicating the possessive, not plural? You don’t know that “Toyota’s” is wrong?

    Guess you didn’t get your money’s worth.

  4. Dus10 says:

    I wouldn’t call the Latte Factor silly. The idea is to have a dramatic impact; and it works. Saving a few dollars a day can add up to substantial amounts when invested, and it is completely true. It is all about the shock factor and to scare people into the truth about savings.

    That being said, small expenses are certainly not the only place to look… and if such small expenses can have such a large impact, just consider the impact of much larger expenses.

    For instance, I live in a very nice cost-of-living area of the nation. We have two vehicles that we bought two-years-used, and we financed them. The monthly expenses for the two vehicles (monthly loan payments, insurance, fuel, and maintenance) is about the same the mortgage on our home.

    That is a very large expense that MANY people live with, and they never try to change it. Short circuiting the financing on vehicles can make a very dramatic impact on your financial future. Instead of keeping a vehicle for two-to-five years, keep it five-to-eight years, and always buy about two-years-used. Pay off your current vehicle and use reverse amortization with a high-yield savings account to save for your next vehicle. To replace your current vehicle with another similar vehicle that is two-years-used will cost you about the same monthly amount, but you could save that amount for two years and be done with it. Then, you have five to eight years to save up for your next vehicle at a dramatically lower monthly amount.

    Then, invest the difference and repeat. That one factor could affect a huge portion of middle class families more than about any other.

  5. jim says:

    Jimmy: I must have left my copy of Strunk and White at home when I wrote this post, I apologize for insulting your delicate grammatical sensibilities.

    In all seriousness though, the point of mentioning schools in the first place was to illustrate that sometimes people need private schools and sometimes people need public schools, neither is better, and it all depends specifically on the person and that the general advice of “go public” may not be fair for everyone on a global basis (of course, planning to go public and saving the rest in retirement, the original message in the article that I missed, may be a valid one). In my case, I feel that a private school education helped me get to where I am today.

    If you’re truly insulted by the fact I went to a private school, there are plenty of blogs written by people who went to public schools (many of which are better than my blog) and I invite you to read theirs. At no point did I saw private was better than public and so your hostility towards something as pathetically minor as grammar is misdirected and petty.

  6. Anonymous says:

    When deciding on a college my parents suggested the same thing, if I wanted to attend a Virginia state school they would pay for it, but if I wanted to attend a private university I would have to pay the difference. I thought this was very fair, especially since I have a younger sister who they also had to pay for. In the long run attending a private university did provide me with many benefits although I am not sure that attending UVA or VTech would provide me with the same overall possibilities. I do think working through college did help my understanding of how “the world works” so even if you do offer to help your children through college ask them to pay for part of it – books, club fees, etc and maybe it will help them in the long run.

  7. Anonymous says:

    P.S. Carnegie Mellon University is not known for its English majors… :)

  8. James says:

    Jim,

    This is an interesting post. The major challenge to the post is that the “latte factor” can have almost as much as of an impact on your finances as one of these major decisions. I think the best thing to do is to minimize your “latte factor” as well as paying attention to the big decisions.

    Best,

    James

  9. Matt says:

    Ultimately, as in everything, it’s about priorities. If you regard Starbucks Lattes as merely “overpriced coffee”, you’re probably not buying them anyway, and thus can’t save anything by staying away…whereas if you don’t, then giving them up may or may not be the right choice.

    I economize where possible on the necessary-but-uninteresting expenses in order to have more resources for the things I really care about intensely. Nobody needs to agree with me on which expenses fall into which category…the point isn’t to resolve a One True Way To Live (which doesn’t and indeed can’t exist) but rather to look at the situation logically, and apply reasonable metrics to one’s choices.

  10. Rob says:

    The other thing with the latte factor – it’s good for the waistline as well…

    Hot Espresso, Syrup Flavored Latte w. Breve Milk – has 444 calories in a tall.
    one a day, 5 days a week, 48 weeks a year.. is 240 Espresso’s.

    That add’s up to 106560 calories in a year. –> Which at 3500 calories per pound of fat – is 30 pounds.

    (OK – I know the body wont quite work like that – but replacing a morning coffee with a glass of water is going to do good things for you)

  11. [...] noticed that Jim over at Bargaineering has a similar post. Worth a [...]


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