All You Need to Do to Finish Rich

One of the most important items on L.B.J.’s political agenda when he was foisted into the oval office was social reform. But Johnson knew this would be an uphill battle, so he decided to focus on something that would receive bipartisan support. He thought that if he could pass a tax cut, which was previously on J.F.K’s agenda, then he could build some momentum and make progress on The Great Society later.

In order to receive support from across the aisle, he had to get the federal budget under $100 billion. Johnson fought tooth and nail to get this done, he even turned off the lights as he walked around the White House.

I was thinking about this when somebody sent me an article that talks about The Latte Factor®, which “is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself.”

The article states:

Bach ran the numbers to demonstrate just how much the little purchases matter. Say you cut out a $5 daily expense. That’s $35 a week, or about $150 a month. If you invested that $150 a month, here’s how much you’d wind up with over time, assuming a 10 percent annual return:

In one year: $1,885
In 10 years: $30,727
In 15 years: $62,171
In 30 years: $339,073
In 40 years: $948,611

There are a lot of assumptions that go into something like this. First it assumes that people are robots. I can assure you they’re not. This assumes they’re able to buy, and more importantly hold, something that delivers a 10% compound annual growth rate. Anything that compounds at 10% over a long-period of time is all but guaranteed to get cut in half at least once. Things get cut in half because people sell ¯\_(ツ)_/¯.

It also assumes that instead of spending $5 a day on lattes they instead have, nothing? I agree that $5 a day on caffeine is a lot, but all coffee drinkers spend more than $0.

The way to lose weight isn’t to get a Diet Coke with your Happy Meal. The way to get rich is not to drink Folgers instead of Starbucks.

The real way that people get rich is by spending way less than they earn, and this can only be accomplished by controlling the large fixed costs like your rent/mortgage and car payments. I’m all for finding ways to save more money, but if you can’t control the big costs, the small ones won’t matter.

 

 

 

 

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