by Kate
In the personal finance world there is a phenomenon known as The Latte Factor. All of us spend money on small things (like lattes) but don't realize how much this money could compound over time. If you buy a $4 latte five days a week, that means in one year you've spent $1,040 on coffee drinks. That $1,040 invested per year (at 4% interest) would become $31,588.59 in 20 years time. Of course, The Latte Factor has some holes (as critics so gleefully point out)- giving up small purchases can never counteract a slow economy, job losses, medical bills, or any of the major costs that make up a life.
The value of the Latte Factor, I think, is somewhere in the middle. There is no one magical way to "get rich" and we're all subject to financial forces outside our control (hi pandemic economy). But there is power in small changes that can't be ignored.
James Clear, in his book Atomic Habits: Tiny Changes, Remarkable Results, talks about a Greek concept called the Sorites Paradox. It's a philosophical concept that wonders about the single moment when one small component changes the nature of a larger thing. Clear re-phrases it this way:
"Can one coin make a person rich? If you give a person a pile of ten coins, you wouldn't claim that he or she is rich. But what if you add another? And another? And another? At some point, you will have to admit that no one can be rich unless one coin can make him or her so."
Clear also applies this concept to habits - "In the beginning, small improvements can often seem meaningless because they get washed away by the weight of the system. Just as one coin won't make you rich, one positive change like meditating for one minute or reading one page each day is unlikely to deliver a noticeable difference." But one day, all of a sudden, the habit become easier and you meditate for two minutes or read two pages. In a month of incremental change, you may end up meditating for 30 minutes or reading a whole book.
This is so intriguing! One dollar, one minute, one word can tip the scales. Incremental changes mean that one penny or one dollar could change everything! This gives me a much greater respect for The Small Amount.
The small amount and the small change can be remarkably powerful in our lives. But sometimes the small amount isn't actually about money. It's true that giving up your daily latte won't make you rich. But it will show you that maybe you don't need to buy a coffee every day to be happy. Thinking about giving up your daily latte may make you realize that you don't value store-bought coffee as much as a weekly brunch with friends or a monthly spa trip. .
Making one small change tends to snowball. Once you stop buying your latte and make it at home every morning, you will likely start noticing other areas of your life to rethink. Maybe you'll make a sack lunch instead of eating out or use your local library instead of buying all your books online. It's hard to stop the intentional train once it starts and the Latte Factor gets the ball rolling.
What small change have you made in your life that led to other changes?
The power of the small amount.