If you've ever read David Bach's book, the Automatic Millionaire, you'll know what I'm referring to when I say I took the latte factor challenge. For 2 weeks, I dutifully wrote down each and every expenditure that I made. Well, I'm sad to say that I didn't learn anything about my spending patterns that I didn't already know. I already live well below my means because my parents did a pretty good job of teaching me the basics - spend less than you earn, pay yourself first, pay off your credit card bill every month, avoid debt, etc. These are all lessons that my friends have had to learn the hard way.
Anyway, back to the latte factor. To save even more money, I would need to pack more lunches and drink a lot less coffee. Hmm...okay. Nothing earth shattering, there.
But a few weeks after I took the latte factor challenge, I decided to do my taxes. And for me, part of the process involves looking through my credit card receipts from the past year. I keep the ones that I need for warranty purposes and shred the rest. Anyway, one thing that jumped out at me was that a LOT of my credit card receipts from 2005 were from the Nordstrom Rack near my office building. Now mind you, I am definitely not a spendthrift when it comes to clothing purchases. I tend to buy the classics - clothes and shoes and accessories that I think will last. But after looking at all those receipts, I realized that I had been visiting Nordstrom Rack at least once a week. And most of the transactions were small, random purchases - $10 here, $25 there. Maybe I was subconsciously thinking about the latte factor challenge. But it suddenly occurred to me that I shop at Nordstrom Rack during my lunch hour because I'm either stressed out or bored. I'd heard of the concept of 'shopping therapy' before, but I guess I never imagined that I inadvertently subscribed to it.
So, I decided to engage in some constructive behavior modification. These days, if I don't go out to lunch with a friend or coworker, I'll either read a book at my desk or take a long walk. Lesson learned. If you really want to save money, it's important to figure out not just what you're spending your money on, but when and why you're spending it.
Anyway, most personal finance books recommend that you do something similar to the latte challenge for 3 months to help you establish a budget. Personally, I think that's the better way to go. One day or even 2 weeks just isn't long enough to capture significant trends. But in the end, I did learn something from the latte factor challenge, albeit indirectly.
Question for the audience. What's your latte factor?