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Book Summary of The Latte Factor by David Bach and John David Mann

What is The Latte Factor about?

What’s the best way to build wealth? Most people think the more money you make, the more money you will have. While there is a correlation that those with wealth typically have higher incomes, building wealth is not just about more income.

The latte factor is based on a straightforward idea that to earn true wealth you need to redirect your money from paying for small things to paying yourself first. So not only saving but investing those extra dollars for the future can have a huge impact on your nest egg.

The chosen item for the metaphor is perfect because there’s an assumption that a small three to five dollars a day will not cause any harm; we often hear it’s only a drink or it’s only a few dollars, but in retrospect, the truth cannot have been more opposite.

Part parable, part self-help guide, The Latte Factor helps you set and achieve your financial goals.

In this summary of The Latte Factor by David Bach and John David Mann, you’ll discover how compound interest can make you a millionaire; why automation, not budgeting, is key to financial success; and how saving five dollars a day is enough to reach financial freedom.

Not buying the lattes, snacks, fast food, magazines and so on can be the difference in being retirement ready or homeless at the age of 50. The latte factor encourages you to analyze every aspect of your life or routine where funds are being spent unnecessarily.

About the author

David Bach is an American financial author, television personality, motivational speaker and one of the most trusted financial experts and bestselling financial authors of our time. He has written nine consecutive New York Times bestsellers with over seven million copies in print, including two #1 New York Times bestsellers, The Automatic Millionaire and Start Late Finish Rich. In addition to his books, David has impacted millions of people over the past two decades through his seminars, speeches, newsletters, and thousands of media appearances.

Since 1994, David has been teaching people how to be smarter with their money. An internationally renowned motivational and financial speaker, he has spoken around the world and taught over a half million people through live events ranging in size from as few as 50 to over 30,000 people.

He is also the co-founder of AE Wealth Management, regarded as one of America’s fastest-growing financial planning firms. John David Mann is the co-author of the beloved classic The Go-Giver, which has sold nearly a million copies in twenty-six languages.

His most recent bestseller, The Latte Factor is an instant New York Times and international bestseller. 

The Latte Factor book summary

The Latte Factor Summary

Bach’s “Latte Factor” is likely something we’re all familiar with. It battles the myth that you must make more money in order to be rich. 

We all have been through that moment of eagerly planning to do something, and then couldn’t execute it because of the financial problems, right? That plan might be going to a worldwide famous singer’s concert or taking up to a new hobby. Even though we have the time and energy for the plan, we might not have enough money.

Well, in fact, there is a way to have enough money for achieving your dreams and saving up for your retirement! Do you wonder what it is?

David says the latte factor came about when he taught a class years ago. One of his students said she couldn’t afford to save. She was drinking a latte at the time. He ran the numbers. He showed her that, if she skipped the latte, she would save $5 a day.

What does $5 a day mean to you? $5 a day is $150 per month. Would you like to save an extra $150 per month? What’s the value of $150 per month 10 years from now? At 10%, you will have an extra $30,000 from the Latte Factor alone. Over 25 years, five dollars a day will get you over $185,000. It’s amazing how such a small difference each day can make a huge impact over time.

There’s something we call the Double Latte. What if you could save $10 per day? It’s not as hard as you might think to cut out $10 per day of spending. Over 25 years, you will have almost $375,000. In fact, you would have $1 million dollars after 35 years with the Double Latte Factor.

“The latte factor isn’t about being a pennypincher or denying yourselfIt’s about getting clear on what mattersIt’s about the little daily extravagances and frivolitieswhatever they may be—the fivetentwenty dollars a day that you could just as easily redirect towardyour own future. “

Let’s take Zoey as an example. If Zoey was to skip her morning lattes for home-brewed coffee that is a saving of five dollars if she chooses to make her own chicken sandwich from home that’s a saving of another five dollars. So our total savings from skipping these two expenses at $10 a day.

The next step is to apply the latte factor math on both of these expenses. That means seeing how much they would cost on a weekly, monthly, yearly and per decade basis. As we move across a timeline, it’s obvious that the numbers become more significant.

The knowing latte patron would always be shocked at the numbers when they are laid out, but that’s one part that we miss. We always see the small purchases separate entities in itself, but collectively the lattes Zoey had purchased could have easily paid for her monthly water or utility bill.

The Latte Factor brings real meaning to the saying that small steps make a huge difference over time. In the investment business, the magic of compound interest really is magical. The more time you have the better. Here are a few real-life examples of the Latte Factor at work:

  • A coffee and a muffin at Second Cup = $3.50 per day
  • Bring your own lunch instead of buying lunch = $10 per day
  • Buy pop in bulk instead of at the convenience store = $1 to $2 per day
  • Rent movies instead of going to the theatre = $50 per month
  • Drive less, walk more
  • Drink boiled water instead of bottled water = $2 per day
  • Pot Luck parties instead of going out to restaurants = $50 per month

Don’t Budget; Make It Automatic

Bach adds another step: “Make it Automatic.” To avoid the need to spend excessive amounts of time and the need for a lot of discipline, making your finances “automatic” will help simplify the process and help ensure that it continues.

Let’s say you put $100,000 into an investment that pays an annual return of 10 percent; in thirty years it will have grown to about $661,000. But if you put that same hundred grand into a tax-deferred account over the same amount of time, it would come to more than $1.7 million. Nearly triple, in other words!

Pay yourself first

The next step in becoming an “Automatic Millionaire” is to “Pay Yourself First.” The most crucial aspect of the latte factor is that it is not about setting a budget or living as cheaply as possible, it’s better to think of the concept as a mindset to how we use our money. Every dollar that we invest is our attempt at unlocking that potential of our hard-earned income. That is why the idea of the latte factor translates to pay yourself first. Because at the end the money that you keep is earning more money for you to use at a later time.

“What ‘pay yourself first’ means is that the first person who gets paid is you—and you keep that money. In other words: you pay yourself the first hour of each day’s income.”

 David Bach mentions that all fundamental wealth begins by paying yourself first, and without doing this you are not creating a financial future for yourself.

The point isn’t that you can’t spend money. Of course you can, and you should. Life is to enjoy. You can buy yourself whatever things you truly want. A nice outfit, a dinner out, a show in town, as long as you pay yourself firt.”

This is likely where many people fail. It’s much too easy to come up with reasons and excuses for why you can’t save. You have bills to pay and situations always come up that require money. Then you find yourself strapped for cash, waiting for your next paycheck, and somehow no money ended up in your savings.

It’s disheartening to hear that the average American is only able to save 2% of their annual income. If you’re in this neighborhood, today would be a good day to start thinking of changes.

One common mistake that we make is that when our incomes rise, our expenditures do as well. Getting a raise should not cue you into financing a new car or getting a bigger apartment. We need to be more aware of these tendencies and practice restraint and spending when our flow of income improves.

However, Bach believes Paying Yourself First is the most important step to becoming a millionaire. No, excuses, Pay Yourself First, and then your other financial commitments become secondary.

Sometimes it’s hard for us to recognize how much we’re throwing away with our purchases. If you don’t buy lattes what purchases do you make on a daily or monthly basis that are equivalent? Do you really need the premium cable package when all you do is watch Netflix anyways? Do you really need that gym membership or need that brand-new car? How many cigarettes do you buy in a week? Do you need to buy your significant other flowers for her birthday and Valentine’s Or what a romantic home-cooked evening dinner be more appreciated?

And there you have it a very precise and thought-provoking idea of how to approach money and spending. This concept can be found in David Bach’s book: The Automatic Millionaire: A Powerful One-step Plan to Live and Finish Rich.

Live rich now

The first two secrets—pay yourself first, make it automatic—those are the how. This is why. Figure out what matters, and follow that:

“Live rich now. Not in some far-off future. Today.”

David says that money is a tool to free you to live your best life. A financial plan can help you know when you can afford to spend more money. But, most things in life that bring real happiness and peace don’t come down to money.

In addition, he notes, your dreams may cost less than you think. For example, Zoey – the main character in The Latte Factor – wants to be a photographer. She convinces her boss to let her live abroad for six weeks and year and to make it part of her career as a travel editor. Lots of people these days are doing something similar.

David says he’s a BIGG proponent of the F.I.R.E. (Financial Independence Retire Early) movement. Retirement doesn’t have to be permanent. It can be a temporary break.

Don’t wait for that magic age of 62…or 65…or 70. Be clear about what you want to do that you’re not doing. Then figure out how to get there sooner.

You don’t have to wait until retirement to live rich

Another shocking discovery is the numbers of what could have been if the money would have been in place in a growing asset. If we had tucked to save money away for a retirement investment of some sort, these are some calculations that we can arrive at. With the power of compounding in time, the numbers are astounding.

It’s obvious that investing and interest rates vary and results can be very hard to predict, so we won’t dive too deep and how we arrived at these; but what is apparent from these numbers is that small amounts do add up with time?

One thing that is for certain when you do purchase lattes or fast-food is that you take away the investment potential of the funds that you spent. You will never give that money an opportunity to grow.


The key message in the summary of The Latte Factor is these three secrets to financial freedom:

1. To begin, always pay yourself first, preferably into a pre-tax account.

2. leave budgeting by the wayside, and instead, automate your road to financial freedom.

3. we can live rich both now and in the future by opening up dream accounts.

All in all, there’s no excuse for living an unstable financial existence – all you need to save is five dollars per day. In other words, the price of a latte.

What did you learn from the summary of The Latte Factor? What was your favorite takeaway? Is there an important insight that we missed? Comment below or tweet to us @storyshots.

Related books:

Total Money Makeover by Dave Ramsey

I Will Teach You to Be Rich by Ramit Sethi

Money: Master the Game by Tony Robbins

The Automatic Millionaire by David Bach (Open in the app)

Unshakeable by Tony Robbins (Open in the app)

The Latte Factor summary

Text shot is adapted from Money Curriculum and Bryce Matheson Youtube Channels.

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