“A latte spurned is a fortune earned.” – People Magazine
During times of economic uncertainty it is good to have an emergency fund available. With the recent roller coaster ride we’ve seen in the market it’s more than fair to say that we’re going through some historic times. The question is where does this emergency fund come from?
Most of us don’t have a large sum of money saved up for a rainy day and experts recommend approximately three to six months of income for an emergency fund.
Three to six months you say? I’ll never save that. Day in and day out that is a common thing for me to hear.
In his book “The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish Rich
So what is the Latte Factor? Simple, it’s the small, seemingly insignificant expenditures that we make on a daily basis. Your morning coffee, a candy bar, the magazine at the checkout isle. All the extra things that we really don’t need but decide to buy anyway. These small expenses add up over time. You might say, but it’s only $5 a day and you would be correct. What’s $5 a day? Well it’s $25 a week or $100 per month. That’s the kind of money that can do one of two things. It can help make you rich or it can keep you poor.
How does not saving $5 a day make me poor you ask? Simple, when the emergency comes along if you don’t have funds set aside to deal with it you’ll be required to borrow. Now you’re required to repay a loan, plus interest. This makes it even more difficult to save for future rainy days. What starts is a vicious circle that is very difficult to get out of. Trust me, I’ve been there.
So how do I start? Simple, stop buying your morning coffee, start bringing one from home. Keep a jar of instant at your desk, I know it’s not as glamorous, but neither is being broke and up to your eyeballs in debt. Besides, you want to finish rich so keep your eye on the end game.
Next, start putting money aside every pay day. Put $50 or $100, whatever you can afford, into a savings account on each pay day. Have your bank do it automatically for you. That’s another one of David Bach’s concepts, have everything automated. I’ll address this concept further another day.
What you will quickly realize is that you don’t miss the morning coffee or the money that you are putting away. You will quickly realize that you enjoy seeing your savings grow. You will realize you can afford to save more and hopefully you will.
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