Micro-Frugality: Does the Latte Factor Matter?

Matt Miner, guest blogger from Design Independence

I recently changed primary care physicians, and as a result got my first physical since sometime when my age had the number “2” in the tens-place.

One result of this was an early-morning blood draw today, for which I had to fast (something I’m not particularly gifted at) in advance of the draw.  No wonder I only go for physicals every ten years.

As I began to head out the door this morning, my initial plan was to grab Starbucks and a breakfast sandwich on my way to work.  But I paused.  I was faced with a Latte Factor decision.  The Latte Factor (tm) is a concept from David Bach, a solid mainstream personal finance author.  His presupposition is that most American consumers will stay normal, American consumers, and so he provides specific recommendations for tweaking spending at the margin to improve savings rates (though I don't think he uses that term).  You can get a great flavor for Mr. Bach's work in my favorite of his books, The Automatic Millionaire (you should buy the book via my link at the bottom of this article, both for Mr. Bach's solid content, and to support DesignIndependence.com).

But now back to my morning.  Rather than the fast-food option, a different choice would be to assemble my usual bowl of cereal and make my usual coffee, and find a creative way to bring the ingredients with me.  In fact, it wasn’t all that creative: I put the coffee in a thermos, milk for my cereal in a travel cup, and covered my dry cereal with plastic wrap.  Total incremental time, including dish clean up tonight: 10 minutes, max.  And now I sit here cozily enjoying my cereal, sipping my coffee, and typing some words into my computer for you.

But did this decision matter financially?  I’d say I saved $8 at Starbucks (latte and sandwich).  We can safely divide that by an after-tax rate pay rate of 60%, which gets us to $8 / 60% = $13.33 in gross income for ten minutes of work.  That’s $80 as an hourly rate, which is fair, as such things go.  And certainly my chosen breakfast had fewer calories, less paper waste, and less delicious salt than my SBUX fare would have offered.

How about over a lifetime?  Well, I get my blood drawn every ten years.  Ignoring the time value of money and assuming ten more blood draws in my life (yes, I know the frequency will likely increase in the out-years, but those are the most discounted from a time value of money standpoint), we calculate un-discounted lifetime savings of $133.33, for making this same decision every time I get a blood draw...

Read the rest at Design Independence...