I first came across the idea of the Latte Factor while reading The Automatic Millionaire by David Bach.  The Latte Factor essentially sums up one of the most important keys to attaining long-term wealth.  It’s a popular phrase in the personal finance world, but it acknowledges a problematic American trait that continues to runs rampant in this country.

The Latte Factor basically states that small, wasteful spending over time gradually robs huge amounts of wealth down the road.  For example, as the name suggests, millions of Americans make it a daily habit to stop at Starbucks and get one of those fancy lattes, mochas or cappuccinos without even thinking twice.  Come on, what’s a trip to Starbucks every day going to hurt?  Well, let’s run a few calculations and we’ll find out. 

Let’s say you average $5 every day on delicacies such as lattes.  That’s $35 a week, or $150 a month.  Utilizing our good friend, compound interest, and stashing that $150 a month into index funds that average a 10% yearly return will really open our eyes to our spending ways.  In 10 years, our latte savings will have grown to $30,727.  In 40 years, by cutting back only $5 a day, we have accumulated over $948,000! Not bad, considering it was a laughably easy change to make.  There’s no simpler way to add almost a cool million to your nest egg!

This principle can be applied to many different areas of our life:  Unread magazine subscriptions, a dirty air filter, opting for generic brands, and ordering water in restaurants are just a few of the countless little ways that we frivolously let wealth leak away.  For at least a few weeks, consider keeping a log of every single transaction that you make.  It’s almost inevitable that there are small things that can painlessly be sacrificed and help boost your savings.  Let’s say you do this and ruthlessly cut expenses that you really don’t need to be making and you eliminate $15 a day in unnecessary spending.  Running the same calculation we did earlier, you would have accumulated over a million dollars in 30 years, and nearly $3 million in 40! 

There’s really no reason not to let the Latte Factor and good old compounding interest work wonders for your personal finance!

This last week, the first checks began hitting the mail as part of Dubya’s economic stimulus passage.  Washington can’t wait for this money to hit our pockets so that we can spend like the consuming Americans we are and hopefully turn the struggling economy around.  While this is what they would love for us to do, and what most Americans will do, I still don’t think it is the wisest choice.

I’ve written a little bit about this before, but felt it deserved more attention.  Millions of Americans are struggling right now, and they absolutely need these rebates to help put food on the table or gas in the tanks.  However, the Americans who aren’t feeling the slowdown as bad should seriously give some thought to what they are going to do with their check. 

The problem is, contrary to what seems to be a widespread opinion, these rebate checks are not really free money.  I’m pretty sure there wasn’t an extra $150 billion budgeted this year for this possibility.  It was funded just like a ton of other of our government’s expenditures- by adding it to the debt.  What’s another $150 billion or so on top of the $9 trillion tab we already have?  Many of this country’s current economic and financial problems originated from our insistence on spending more than we make, and this stimulus package only illustrates this further. 

I know that paying off debt or stashing the check away are definitely not the best short-term options for helping the economy, but I don’t think it’s the end of the world.  Our economy may be slowing, but that’s a normal aspect of any growing, strong economy.  I think we need to worry less about the short-term health and more about the what lies further down the road.  I don’t know when or how severe the breaking point will be, but I do know that our current financial ways are unsustainable. 

This rebate check can give us the chance to help reverse this trend.  By paying off some debt or putting the money away, we are doing ourselves a huge favor down the road.  And although Uncle Sam wants us to spend, spend, and spend some more, the long term benefits of using this money to build wealth far outweigh any short term jolt it can provide.  Even if it’s only a portion of the check, try to do your future self a favor.

Ah you gotta love springtime:  no more snow (knock on wood), halfway decent weather, the stress of final exams, and the reality that summer is almost here, which for a lot of us means finding summer work.  At about 3 weeks and counting until school lets out, I was still completely up in the air as to what I was going to do.

When I started school last year, I was just starting to learn the basics of blogging.  In my naïve venture, I figured I could casually build my blog through the school year and by this summer be making enough money to not have to work.  Yeah right.  I found out pretty quick that a few hours a week devoted to blogging does not equal much revenue! 

So then I realized I would indeed need to find summer work.  I really wanted to find something in the banking/finance fields to get some more experience at what I’m studying.  I talked to the banks in town, and they couldn’t be less enthusiastic to give me a position.  Alright, so plan B was a no go.

At this point I was starting to get a little bit worried.  My budget was getting tight, and I wasn’t any closer to finding anything.  It doesn’t help that in southern Iowa there aren’t many options unless you’re willing to commute. I considered trying to find work in Des Moines, but even driving my Civic would get expensive with the 80+ mile round-trip commute and gas that gets more expensive by the week.

And then out of the blue my boss from last summer called.  I detailed cars last year at a car wash in town, and although I didn’t mind it too much I just figured I would move on and find something else.  However, as I considered my options, detailing again began to look like the best route to take.  It’s close to home, has a flexible schedule, is active work, I get to work with a couple of my buds, and I get free car washes!  Considering the alternative is to spend my last 3 weeks of school in a stressed-out state of desperately trying to find something, I think this is the best choice.  I would have liked to have found something relevant to my studies, but I’m still at least 3 years from graduating so there will be plenty of time for that.  Besides, we usually get done with our vehicles early in the afternoon, so when it’s not too unbearably hot I can spend the afternoon hacking away on the golf course!  There’s no better place to spend a summer day!

I really got lucky here though.  Without this opportunity, there’s a good chance I would have been jobless when summer break started.  I made a couple of big mistakes:

- I didn’t start early enough:  Employers are trying to find their seasonal help early, and by the time I finally got around to looking, a lot of opportunities were already gone.  This is especially true this year, with the sagging economy causing a lot of employers to cut back.

-I didn’t have a resume:  I’ve never had to use one in the past, and with everything else going on right now the last thing I wanted to worry about was trying to scrape one together.  From now on I need to keep an updated one at all times.  You never know when an opportunity will pop up and you’ll need to respond quick. 

It looks like it’s going to work out though, and I’m definitely glad.  I’m sure there are a lot of teens out there who are still struggling with this right now.  I’m in the process of finalizing what I want to use for a budget this summer, and I’ll post it up here soon.   Auf Wiedersehen!