Latte factor calculator

The latte factor is a phrase from the personal finance writer David Bach: small daily spends, the coffee on the way to work being the famous example, add up to more than people think. The arithmetic is simple and still surprising. A 4.50 coffee five times a week is 1,170 a year.

It has fair critics too. Cutting coffee alone will not fix a budget where rent is the problem, and treating every small pleasure as a leak is a quick route to a joyless spreadsheet. Use the number to choose, not to feel bad.

The return rate starts at zero. Any positive default would be a forecast, and a forecast of investment returns does not belong on a page about coffee. If you enter one, the growth is shown apart from the money you kept, so you can see how much of the big number is the assumption.

Figures are before inflation, and prices change. Treat the ten-year number as an order of magnitude.

The habits that are easiest to cut are the ones with a cheaper version that scratches the same itch: coffee made at home and drunk on the same walk, a packed lunch twice a week instead of five. Track the swap for a month. If it holds, move the difference somewhere you can watch it grow, or it will be spent on something else by week three.

Without a return it is one line: cost each time, times how many a week, times 52, gives the cost of a year. Multiply by the years for the total you keep.

With a return, the page splits the yearly cost into twelve equal monthly deposits and compounds them monthly. That is the future value of an ordinary annuity: FV = P × ((1 + r)^n - 1) / r, where P is the monthly amount, r is the yearly rate divided by 12, and n is the number of months.

A 4.50 coffee five times a week is 22.50 a week, 1,170 a year and 97.50 a month. Over ten years you keep 11,700. Enter 5% as the return and the same deposits grow to about 15,140: 11,700 of your own money and about 3,440 of assumed growth. The 5% is an example, not a forecast.