In a compelling, heartwarming parable called ‘The Latte Factor’, David Bach and his bestselling coauthor John David Mann (The Go-Giver) tell the story of Zoey, a twenty-something woman living and working in New York City. Like many young professionals, Zoey is struggling to make ends meet under a growing burden of credit card and student loan debt, working crazy hours at her dream job but still not earning enough to provide a comfortable financial cushion. At her bossʼs suggestion, she makes friends with Henry, the elderly barista at her favorite Brooklyn coffee shop.
Henry soon reveals his “Three Secrets to Financial Freedom,” ideas Zoey dismisses at first but whose true power she ultimately comes to appreciate. Over the course of a single week, Zoey discovers that she already earns enough to secure her financial future and realize her truest dreams — all she has to do is make a few easy shifts in her everyday routine. The Latte Factor demystifies the secrets to achieving financial freedom, inspiring you to realize that itʼs never too late to reach for your dreams. By following the simple, proven path that Henry shows Zoey, anyone can make small changes today that will have big impact for a lifetime.
The Latte Factor is Hard
Now, the biggest issue with this seemingly simple concept is no matter how accurate The Latte Factor may be, this hints at cutting off or practicing a stingy habit towards the most enjoyable pleasures of life, no matter how tiny or immaculate. The Latte Factor is hardly limited to Lattes or Espressos or all kinds of caffeinated beverages if you are wondering. It merely is an attempt to symbolize overspending and overspending unnecessarily in the name of ‘need’ or the ‘necessity’ to maintain a lifestyle penned out by everybody else but you. The Latte Factor is an individual’s attempt to fit in to the newly defined societal norms of social media and the brand culture. Something that was previously understood and practiced as a sign of prosperity or acts of achievement once you start settling down or are already financially dependent or just happen to be an incredibly privileged person receiving all of the above by default. This no longer is the case with the advent of social media and the guise of ‘perfect lives’. So, what was acceptable and understandable to carry out at the age of 35 and above before, say a decade ago is now the factors upon which an individual is judged and labelled at 20 something.
This is where The Latte Factor interferes. But this article is not about how much money you could potentially save if you stopped getting you branded cup of coffee or how much money you could stack by compounding the same amount for 20, 30 or 40 years — because it is hard. Giving up The Latte Factor is hard. It is harder if you are millennial. It is next to impossible if you are an avid user of social media platforms. You will receive nothing but ‘Dude, you are crazy’, ‘Come on, it’s just one day’, ‘Learn to live to the fullest’ if you tried to pitch this idea to most of the audience.
So, let us keep this real, attainable and millennial friendly. And also something that will not serve you a notice from your friendly neighborhood coffee shop that may or may not start with an S.
Enter : The Gig Economy
What we will discuss now is what you may already know and be familiar with if you have ever come across terms like ‘Hustle Culture’ or ‘Gig Economy’ which are very popular given how material this generation is for no fault of its own. We need these things, it makes us who we are and often give us the tiny push of confidence on days that hardly look promising from the offset.
Hustle Culture is not exactly the same thing as The Gig Economy. The former being a broader time often diluted to the bits when you try to make sense of it. The Gig Economy refers to making the most of your free time — not necessary to pedal an extra incentive to your monthly income but it promotes the idea of honing a skill that you are already good at, something you may want to improve upon and use it as a hero-skill in your main full-time scene and making a few quick bucks out of this existing skill set to the best of your advantage.
Therefore, The Gig Economy is not you doing a 9 to 5 and then spend the rest of your time as a barista so that you can make the ends meet. That’s Hustle Culture. This is you, supposedly a full time web developer at a corporate and you use your free time to develop or design websites or graphic content on a freelance basis. You hone your hero skill, you enjoy it and you still make the most of your free time.
The Opposite of The Latte Factor
So, how is this The Opposite of The Latte Factor?
So, The Latte Factor insists you to consider or give up tiny amounts you spend on a regular basis in order to have the same extra amount as your potential long term investment capital. What if you used the best of both worlds — The Latte Factor and The Gig Economy, and instead of saving the same amount you spend on your coffee, you looked the earn it instead? This gives you the cushion for your potential overspending, meaning you do not have to shun it completely and you would still be left with more than enough to invest it for a better return. For example, if you stopped buying a $5 latte each day for 365 days, you would have an additional $1,825 to invest each year and this is what The Latte Factor urges you to do and this is what it will look like:
The opposite of this logic would be to increase your yearly income by $1,825:
In both scenarios you end up getting the exact same result where you now have an extra $1,825 that you could go ahead and invest. But if you were to take the opposite approach of The Latte Factor, used The Gig Economy and pedaled up your monthly and eventually yearly income, will you be worried about cutting a small recurring expense on a a daily basis that inadvertently brings you a load of happiness?
The Latte Factor makes a simple point: By investing what feels like a small amount each day, you can actually accumulate a huge sum of money over the course of decades. The issue with The Latte Factor is actually not the concept or the idea of implementing it. The problem comes with where that additional money is coming from: a latte, which is something that many people look forward to spending money on each morning.
The most popular and overdone thing in terms of personal finance is : cut expenses, cut expenses, cut expenses.
While it does make sense to question your spending to see if the things youʼre throwing money towards actually improve your quality of life, there is a point at which spending less is likely to lead to a lower quality of life, especially in big cities and metros where you are expected to lead the norm.
Going back to the household that spends $60,000 per year. Say, they need to alter their lifestyle and make some necessary deductions in order to save or in order to build an investment capital or a financial portfolio. Suppose they make several life changes that target the Big Three of expenses — Housing, Transportation and Food and manage to reduce their yearly spending all the way down to $40,000 without reducing their quality of life.
At this point, the only fat they may be able to trim from their expenses are little things like a monthly Netflix or channels subscription, the occasional day at the waterpark, or a morning latte. Sure, cutting these expenses would free up some cash for investments, but it might remove the little things that bring little dose of joy everyday. And let us be honest, no body wants that. At some point, it makes sense for a household to shift their focus from reducing spending to increasing income. After all, there exists a limit on how low you can push your spending, but there doesnʼt exist a limit on how high you can push your income.
Just like cutting a $5 latte could lead to a huge amount of money if invested over several decades, so could a small daily increase in income!
So here comes The Gig Economy and hopefully a more acceptable version of The Latte Factor which now, does not seem as bizarre, is caffeine friendly and will not make you want to chase me with a bat.
