It’s surprising how small expenses add up when you buy them regularly. For example, I just logged into Spending Profile and noticed that my spending in the restaurants category was 3 TIMES what I had budgeted! I have to admit I know why. I buy my lunch at work. The prices are low; I can get good lunch for $4 to $6. This is much less than I would pay at a restaurant outiside the office. So I feel I’m getting a good deal, plus it plays to my laziness as I don’t have to pack a lunch. But I buy lunch every day. It adds up. I’ve spent $120 on lunches this month already.
David Bach refers to this in his books as the “Latte factor”. If you buy a coffee once or twice a day, it adds up to a small fortune over time. Different people have different Latte factors. The problem is, many people don’t even know they have a Latte factor, since they have never analyzed their spending habits.
The first step in reducing or eliminating your Latte factor is identifying it. My Latte factor jumped out at me from the pie charts in Spending Profile. The Restaurants slice was simply too big.
What to do? $120 is more than the monthly amount I would like to be spending on restaurants. I know it will be more effort, but I have a feeling I’ll be packing leftovers for lunch more often now!
I firmly believe that the first step to financial success is tracking your spending (It is the subject of a future post on my blog). I started becoming smart about my finances when I began tracking our spending using Microsoft Money. I helped me with two things: 1) I can easily find out where I can cut back 2) I know how much I spend, so I know when I can become financially free.