The 'Latte Factor' Calculator

What is the Latte Factor?

Coined by author David Bach, the "Latte Factor" refers to the idea that small, seemingly insignificant daily expenses (like a fancy coffee) can add up to substantial amounts over time, especially if that money were invested instead. It's a powerful illustration of opportunity cost and the magic of compound interest. Want to explore compounding further? Use our Compound Interest Calculator.

How This Calculator Works

This calculator takes your daily expense amount and projects its potential future value if you consistently invested it over a number of years. Here's the breakdown:

1. Calculate Monthly Investment: It converts your daily expense into an average monthly amount (Daily Expense * (365.25 / 12)). We use 365.25 to account for leap years.
2. Calculate Future Value: Using the standard formula for the Future Value of an Ordinary Annuity (FVOA), it calculates how much those regular monthly investments would grow based on your estimated annual return and the investment period.
3. Calculate Total Spent/Invested: This is simply the monthly investment multiplied by the total number of months.
4. Calculate Total Interest: The difference between the Future Value and the Total Amount Invested represents the growth achieved through compounding.

It's Not Just About Coffee

While the name comes from lattes, the principle applies to any recurring small expense: daily snacks, subscriptions you don't use, frequent takeout, etc. The point isn't necessarily to deprive yourself of small joys, but rather to be mindful of where your money is going and to understand the potential long-term impact of redirecting some of that spending towards savings and investments.

Seeing the large future value figure can be a strong motivator to identify and potentially cut back on discretionary spending. Wondering how many hours of work that daily treat actually costs you? Check the "Time to Earn" Calculator.