The Latte Factor on Steroids: 5 Small Changes That Can Make You Big Money

by Ryan Guina

Small changes can have a large impact on your pocket book. Perhaps the most famous example of this is the Latte Factor, a term made popular by David Bach in his book Start Late Finish Rich. The Latte Factor is an example of how giving up a $4 cup of coffee every morning can turn into hundreds of thousands of dollars if you invest the money instead of buying coffee. Of course it assumes you invest “x” amount of money every month for “x” number of years at “x” percent interest. The numbers don’t matter so much as the concept. You can make a big difference by making small changes.

5 Small Changes That Can Make You Big Money

In addition to (or instead of) giving up your morning latte, you can make these small changes to your financial life and have a large impact on the bottom line.

Use a high yield savings account. Many savings and checking accounts offer a minimal interest rate, often less than half a percent. You can easily find a bank that offers high yield savings accounts that will triple or quadruple the interest rate at many banks. Over the course of the year you can earn hundreds of dollars by letting your money work for you.

Transfer your credit card balance to a 0% introductory offer. The interest rate on credit cards usually ranges from the high single digits to the mid 20% range. If you carry a large balance on your credit cards, you could easily be paying hundreds of dollars per year in interest alone. Consider opening a credit card with a 0% balance transfer offer and enjoy up to 12 months of 0% interest on your credit cards. Send in the same amount every month that you were paying on your credit card with the high interest rate and you can erase your credit card debt in much less time.

Pay lower expense ratios. Expense ratios are the fees that mutual fund companies deduct from your investments each year for their services. You may not think that a percentage point would make a big difference on your investments, but given enough time, the difference can easily be in the tens of thousands of dollars. Make sure you examine your expense ratios and try to shop for low cost index funds or mutual funds with low expense ratios. Some brokerages that offer a wide variety of low cost mutual funds and other investments include Vanguard, Fidelity, Charles Schwab, and T. Rowe Price.

Improve your daily driving habits. Does this sound familiar? Press the pedal to the floor, slam on the brakes, repeat? Making small changes to your driving and vehicle maintenance habits can save you wear and tear on your vehicle and use less fuel. Fewer visits to the mechanic and fewer stops at the gas pump equal big savings.

Use a programmable thermostat. Programmable thermostats are a great way to moderate your energy usage. Instead of heating or cooling the house when no one is home, or trying to remember to turn your thermostat on and off, or remembering to change the temperature for certain times of the day, use a programmable thermostat. You can set the thermostat to heat and cool your house based on when you will be home, when you  are sleeping, or other times when it makes sense to have a different setting. Programmable thermostats cost around $30 and can often pay for themselves within a couple months.

Small changes can bring big results

You don’t need to take on 2 extra jobs to earn more money and you don’t need to live like a monk to save money. Sometimes the answer is as easy as making a few small changes and applying them consistently to your financial plan. Over the course of a lifetime, these changes, and others, can result in thousands of additional dollars in your pocket, instead of someone else’s.

Published or updated October 6, 2014.
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{ 9 comments… read them below or add one }

1 DDFD at DivorcedDadFrugalDad

Nice post! I always say little things add up . . . and you have to start somewhere.


2 Craig

I like the high yield accounts, problem is right now all the interest rates have come down a lot. I have been thinking for awhile to set one up but the rates are the same as my money market account so I have no real need to switch.


3 Ryan

The rates are fairly low right now, compared to the level they were at a couple years ago. But there are extremely low rates at many banks. It pays to shop around.


4 My Journey

Ryan & Craig,

You should not be comparing interest rates of today and 3 years ago (the good old 5% days)…rather the comparison is between what you can get from lets say High yield HSBC account vs. Brick and Mortor HSBC Account.

When I helped out a buddy a couple years back, he had made more in one month’s interest than he did the whole prior year.


5 Ryan

I agree. It’s all about how much you can get now vs. the competition. If your bank only offers 0.20% on a savings account, then 1.5% is a huge upgrade!

6 Kirk Kinder


Great post. When I do a plan for folks, I see many of the items you mentioned here. Lots of low hanging fruit that makes a big difference over time.

The only comment I would have on your list is watch out for the 0% transfer on credit cards. Due to the changing credit card law, many card companies are now charging a 5% transfer fee. Some haven’t yet, but this will become a standard practice. That often negates the benefit. Just make sure you do the math and know all the associated costs.

The other big area most people overlook is insurance. Get your auto and home insurance quoted by independent agents or online. You can often save 10% by switching. Sure, there is work involved, but it is worth it over time. Even if you are happy with your current provider, you can often get them to cut their rates if you show them quotes from other insurers. Also, make sure you have a higher deductible. I see so many people with $100 deductibles for auto or homeowners. I usually recommend $500 or $1,000 (for those with an emergency fund). You can save 6-10% by doing this.

Also, quote your life insurance. You may find that term rates are lower now than when you got your policy in force. This is true even if you are a few years older. And, get rid of any cash value life insurance in favor of term. That will save you tons over time.

But, you are so right. Small differences do add up.


7 Ryan

Good call on the insurance, Kirk. And yes, balance transfer fees can negate some of the benefits, but many cards offer a 3% transfer fee. That is a great deal if you are currently paying high interest rates. Even a 5% transfer fee is much better than paying north or 20%.


8 Hank

You mention saving money on gas through better driving habits. This is definitely true, but I actually had significant decreases in the costs of insurance, car repairs from accidents, and speeding tickets when I started to focus on improving my driving habits. Just a different twist on your suggestion…


9 Save Money Hound

Making small changes to your spending habits can make a big difference. And the great thing is that it is easy to get going on making small changes. Thanks for the thermostat idea. Had not really thought about that one. I like the online savings tip and the treat your car gently tip. Cheers to the Latte Factor.


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