1. What is the Latte Factor?

The Latte Factor concept, popularized by David Bach, illustrates how small daily savings (like skipping a latte) can grow into significant wealth over time through compound interest.

2. How Does the Calculator Work?

The calculator uses the future value of an annuity formula:

Where:

• \( 5 \) — Daily savings amount ($)
• \( \frac{365}{12} \) — Converts daily to monthly savings
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of years
• \( 12 \) — Compounding periods per year

Explanation: The formula calculates how small daily savings grow when invested monthly at compound interest.

3. Importance of Small Savings

Details: The Latte Factor demonstrates the power of compound interest and how eliminating small daily expenses can lead to substantial long-term savings.

4. Using the Calculator

Tips: Enter your daily savings amount, expected annual return rate, and number of years to see how your small savings could grow.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical "Latte Factor" amount?
A: While $5 is commonly used, it can be any small daily expense you could redirect to savings.

Q2: What's a reasonable return rate assumption?
A: Historically, stock market returns average 7-10% annually, but conservative estimates use 5-7%.

Q3: Does this account for taxes?
A: No, this is a pre-tax calculation. Actual results may be lower depending on tax treatment.

Q4: Can I adjust for weekly instead of daily savings?
A: Yes, just multiply your weekly amount by 52/12 to get equivalent monthly savings.

Q5: How accurate is this projection?
A: It assumes consistent savings and steady returns, which may not reflect real market volatility.