Now for Part II of figuring out finances, with our next two topics being: the anxiety giving, student loans and the undercover, Latte Factor. Again, the “Latte Factor” I will be talking about is an idea from the book “The Latte Factor” by David Bach, which everyone should read. It is a very easy read, with applicable tips on how to save money for your future!
Now let me dive in:
TWO: The ruin your life and give you anxiety in the middle of the night, Student Loans. So as someone who went to a public college, where I was given little to no money to help pay for college, I have student loans. Now the question is always, what is the best way to pay off these loans?
There are many theories to this. One is because your interest rate (see Part I of the Latte Factor) is around 5%, many people say just keep them forever and pay off the minimum balance. BUT, did you know if you just pay off the minimum balance you will literally be paying many of those loans off for the next 20 to 30 years?! That is not something I wanted to do.
So on the other hand, making more than the minimum payments will pay them off quicker. How much out of what you make can you live without? Come to a number that is a decent amount over your minimum payment, and apply that monthly. This will ensure a sooner pay off date. If you get your tax returns, put that money towards the loans. The minimum payments that are recommended are barely enough to pay off the amount of interest that was made on your loan.
Here is the tricky part of compound interest. When you are investing, it is a good thing. But with loans, it can be a very bad thing.
Say you have about $40,000 in student loans with a 5% interest rate. This means that by the end of the year, you will owe (40,000 * .05 = 2,000) $42,000. If you are paying the minimum balance of about $300 a month, that comes out to about (300*12) = $3,600.
Which means that only (3,600-2,000) = $1,600 is going towards you loans in the end, giving you an end loan about at $38,400 after a whole year of payments! If you continue that over the years, it will take you about 20 years to pay that off!
That’s why I believe it is necessary to make higher payments when it is financially possible for you.
Now, I looked into consolidating loans, which basically means instead of having loans from more than one source with different interest rates (like myself) it combines them all into one big loan with one interest rate. For some people it might work, but the problem that I saw is these companies that consolidate loans do not guarantee the interest rate they start at. That means they may give you a 3% interest to begin with, but after a few years, they could raise it up to as high as 8%! I just don’t see the value in risking having a higher interest rate in the end. But that’s up to you! And each loan case is different, so please look into for yourself as well!
THREE: The undercover, Latte Factor. This one is still difficult for me to manage. But it is the thought that everyone has a “Latte Factor.” This is just something that you spend money on that you do not necessarily need. It could be a Starbucks Grande Vanilla Latte everyday on the way to work or that bagel from the shop down the street or the juul pods you pick up every month…. It could be anything!
And the best way to figure this out is to write down everything you spend money on in a day and price it out. Try doing this for a week to see what your habits are!
So for me, when I first started working downtown, my day looked like this:
Coffee – $3.00-$6.00
Croissant – $2.00
Eating out for Lunch – $10-$20
Dinner (If I ate out) – $15-$20
In total, I was spending about $40.00 a day eating out! So let’s dive into that.
Forty dollars a day, every day and every week for a whole years comes out to be:
($40*5 days a week)* 52 weeks in a year = $10,400. THE THINGS I COULD DO WITH AN EXTRA $10,000! I could go on a cruise, pay off one of my whole student loans, pay for my whole family to go to Disney world! The list is endless.
So I had to reevaluate, and you might be wondering how I did this. Well, it is called meal prepping! I’m sure you all have heard of it lol. I started grocery shopping for all of these meals and you will be shocked how much less you spend.
This is my day now….
$2.50 Breakfast (Crack an Egg) – You can get these in the Egg aisle at pretty much an grocery store
$0 Coffee (I drink tea or coffee from the office)
Less than $5 (Lunch that a pre-made at home: sandwiches, leftover dinner, etc.)
$5 Dinner (Meal Prepped dinner)
Making my new grand total to be: $12!
That means by just planning out my week a little bit in advance, I decreased my daily spending by 70%!! That means in a year, I will get ($12*5 = $60 * 52 =$3,120 /// $10,400-3,120) $7,280 back in my pocket for whatever I want! I could put that towards my student loans, or my 401k or my vacation to Europe that I’ve wanted, or those yoga classes that I’ve been wanting to take. That money can be doing more good in my life than giving me just a daily dose of caffeine.
Remember to think of the big picture in all of this. With small, daily sacrifices, you can make your dreams happen without taking out a loan or worrying about your finances. It just takes a bit more planning.
So I challenge YOU to find your Latte Factor and start off small. I made baby steps for all of these. First, I stopped buying coffee. Then, I started bring breakfast. Finally, I made myself lunch and dinner. Just take it one step at a time.
And if you really want to illustrate how much you are saving, open a new savings account, and call it “Money Saved.” Everyday, you can add to it the money you would have spent on coffee, but decided against it. Or the day you wanted to eat out, but decided to save. Put that money into this savings account and watch it grow as the year goes on. Then, make one of your dreams or budget list items come true with it at the end of the year!
BUT MOST IMPORTANTLY, remember to live your life. This is not meant to scare you, but to excite you! Make sure you a still enjoying life now, but don’t be afraid to plan ahead for the future. If you have a vacation coming up, open a savings account and have automatic amounts of money pushed into it weekly or monthly, so that when that vacation comes around you have set aside money for it. Treat yourself every once in a while 🙂
I’m also going to be honest, that it took me a YEAR of being in corporate America for me to even begin thinking of my finances. Start now! And get excited for your future! I hope this was helpful!
These three topics (401k, student loans, and the latte factor) have been really important especially with me beginning graduate school for the next two years. I have had to figure out what I can afford and ways to save money, so that I can pay for my own tuition. With all this in mind, I have been able to figure out the best financial path with my upcoming investment in my future. Let me know if you want to know the details of how I have figured out covering the tuition for my graduate school education!
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Leave any questions or comments below as well! I’d love to hear your thoughts as well!
Here is the link to the book as well, it is only about $7.20 right now: