Understanding the Latte Factor and its Impact on Personal Finance

The term “latte factor” was popularized by America’s bestselling financial author David Bach. This term refers to various small routine expenses that can have a large enough impact on our finances. In fact, these expenses are not necessary and can be eliminated. The word "latte" is taken from one type of coffee serving that is quite popular called Caffe Latte, which is a mixture of coffee with milk and has a thin layer of foam on top. Its use in latte factor refers to the habit of people who unknowingly buy coffee on a regular basis to increase their productivity. According to David Bach, coffee is one of the small-scale expenses that can have a total expenditure exceeding the cost of electricity and water if it is done regularly in a month. The spending on coffee itself is usually not that important. However, if it is done continuously, the impact will be felt on financial management.

Latte Factor in the Digital Era

The discussion about latte factor cannot be separated from financial management. It is not only about excessive coffee consumption, but also describes various less important routine expenses. The examples are buying snacks, eating out, buying cigarettes, buying bottled drinks, and others. Small urgent expenses that can develop into someone's latte factor also remain in this digital era. For example, an employee can spend around IDR 360,000 - IDR 648,000 in 24 working days if he is used to taking online transportation modes to go to work. This basis of assumption is from the cheapest fare calculation for motorbike which is around Rp. 15,000 - Rp. 27,000. However, the calculation is only based on the cost of traveling from place of residence to office. If the same employee chooses to use online transportation to return home after work, his expenses would be doubled or more. In addition to online transportation, the extra costs in banking services can also be considered latte factor. Customers can spend up to hundreds of thousand rupiah if they have high frequent interbank transfer activities. For example, transferring money between different banks at least once a day for 30 days with fee per transaction around IDR 6,500. The two examples above are latte factors that are common today. However, minimizing the latte factor does not mean prohibiting an employee from leaving for work using online transportation modes or prohibiting customers from transferring money to a different bank. An employee can commute to the office using an online transportation affordably when he gets a discounted promo. If there is no promo, he can use the Transjakarta bus or other public transportation that offers low cost. He can also opt to use private vehicles such as motorbike to avoid traffic. The same principle also applies to bank customers. He can use ATM Link which offers banking services such as balance inquiry, cash withdrawals, and transfers at a more affordable cost. In addition, digital wallet or third-party applications that offer cheaper rate can also be a solution. Meanwhile, for fans of online shopping, promotional programs from the marketplace can be a simple solution to minimize the latte factor. Examples are free shipping promotions, cashback, discounts, and many more.

Managing Latte Factor

The best way to identify our latte factor is to track it down. The trick is to keep a record of expenses for every penny we spend each day. Also, take advantage of the balance information and mutation feature to track the expenditure and income. Recording these expenses must be done consistently for at least one to three months to get the best results. That way, we can better identify the weakest areas in our spending. If we have found it, we can reduce our latte factor according to our financial capabilities. Even so, the latte factor itself is not about sacrificing the happiness we deserve from the "latte" in a cup of coffee. It is about how we can filter things that give more value to our lives. If we can reduce or even eliminate those extra expenses, our quality of lives will be better. We can divert the extra money for more useful needs, such as pension investment, health investment, education investment, and many more. Ref: https://www.becomingminimalist.com/latte-factor/ https://tirto.id/latte-factor-pengeluaran-kecil-yang-membuat-bokek-cilW https://www.kompas.com/tren/read/2020/01/06/061500265/waspadai-latte-factor-pengeluaran-kecil-yang-membuat-keuangan-tekor?page=all https://koinworks.com/blog/latte-factor/#Latte-Factor-dan-Pengaruhnya-Terhadap-Keuangan