Find Your Latte Factor
Let's talk about finding the money. (laughter) Your Latte Factor. Finding the money. So remember I said earlier, like, the number one thing that people say, I don't know where all the money goes". It's what people have always said. "You know, I make all this money, I don't know where it goes. It just goes. Like water, it just goes through my fingers. Well it goes in lots of directions. Earlier I said to you that if you don't have a plan for your money, somebody else does. It's worse than it's ever been. So, all the principles I'm going to teach you today, at the end of the day, the difference between those of you that will take action, hopefully every single one of you watching, and you at home too, are gonna take action today. But the difference between those who take action and don't take action, is an internal belief that this is possible. And we have mental wall... we have these mental barriers in our heads that say, "ah, he doesn't know my situation". "I can't do this". "It's not ...
possible". So, this happened to me. I was teaching a class, and I got to the end of the class, here again, in the Bay area. And this young woman named Kim said, "David this is great. I know I should pay myself first, and I understand all the stuff you've shown me, and yes, it's great I'm in my twenties and I should do this. It makes all the sense in the world." She worked at the Gap in San Francisco. She's like, "But I can't afford it. I don't have the money". And as she's telling me this, she's sippin' on a latte. (laughter) And you know, it's hard to believe that this was a long time ago and Starbucks had just come around. So, I lived in Reno, the Starbucks on Chestnut street, I've just gone to my first Starbucks, she's holding her latte. And I go, "Kim, how much did that latte cost?" And she's like, "what are you talking about?". I'm like, "that thing that you're holding right now, how much did that cost? Like in the morning when you go to work, do you always pick one of those up, or do you have coffee at work that's free?" She's like, "well, I usually pick up one of these". And I was actually teaching this class in a room that had a blackboard. I like the fact that the audience here is old enough to know what a blackboard... You are right? You've seen blackboards? Some of you at home, are like, "what, blackboards?". Like, I've got these kids, my son says to me, "what's a blackboard?". I'm like, I wanna show him, this is a blackboard. So, I'm actually in front of a blackboard, and I go well let's talk about this money Kim. "What'd you pay for the latte?" And she goes, "I paid $3.50". I have not changed these numbers intentionally. What's the average latte cost these days?
[Audience Members] Four, five bucks.
Like, five-six bucks right? I should change these numbers, but I leave them this way for, for I don't know, just because like, you know it's just crazy. There's a big think in New York, cause there's this really popular place where the lattes are 12 bucks. And people line up for these lattes. So, we go to her latte, it's $3.50. I go, "in the morning do have anything with that latte?". And she goes, "yeah, I get a muffin". I'm like, "I muffin, a buck 50, I'll get a muffin cost a buck 50".
There more than that.
And she's like, "it's fat free". Like, right, how much is a muffin now?
Three or four bucks.
You're not going to Starbucks and having a latte and a muffin for less than six, seven, eight dollars am I right? So, and I'm not picking on Starbucks. I'm not even trying to, like, stop having lattes. Like, I'm just gonna go through the math here. So she's like, okay so that's like five bucks. Now, remember, she's not even at work yet. Okay, so I go, "when you get to work, between 9 o'clock and noon do you take a break?". She's like, "yeah I go to Jamba Juice". (laughter) You guys remember Jamba Juice? So I'm like, "Okay, what's the juice cost?" and it's like $3.75. Now, that's not what juice costs anymore. Like, in New York, where we all go, and I know there's companies coming all over the place, juice is solidly 10 bucks. A lot of juices now are 12, 13, 14, 15 dollars. Now, it's healthy. If you have the right juice, you don't actually have to have lunch, but it's 10 bucks. In this case it was $3.75. She gets a Power Bar, it's $1.95. I add it up and I'm like, "check this out Kim, you just spent $10.70" Kim looks at me and she's like, "what's your point?". I'm like, "What's my point? You just spent $10.70". Now, she's with her boyfriend, her boyfriend thinks this is hilarious too. I go let's just do some basic math. $10 a day is $300 per month. That's $3,600 per year. That, by the way, is more money than the average American's putting in retirement accounts. Okay? What does that look like in a period of time? If I run out 30... She's in her 20s. $3,600 at 8% in 35 years. That's $369,967. I ran it at 8%, I think you can run 8%. I'll show you how to have a balance portfolio. I think you can make 8% on your retirement accounts. That doesn't include the Gap where she works making a matching contribution to her 401K plan, which they do. Which she's not using. So, she's passing up free money, she's paying taxes, and she's sippin' a latte. And she says to me, "well that's not $1,000,000". I go, (laughter) "that is $669,000 more than you are currently on track for". So again her boyfriend thinks this is pretty funny. And their getting married. And I go, "let's do you guys together". 10 bucks each. She's like, "you got a latte too, what are you talking about?" $1,339,000 between the two of you. Take this out five more years it's $2,000,000. Okay, so I, it is "wow" right? (laughter) It is "wow". We did this on the Oprah Winfrey Show. It was the most amazing thing. We had a woman in front, we had her track her Latte Factor, she, Oprah pulled back this curtain, we had $250,000 in real cash. I've never seen $250,000 in real cash. The had security guards backstage. Pulls the thing back, audience is like whoa. And, I've been teaching this since the 90s. By the way, I need to run these numbers. If you went back and you took the $10 a day and you put it in Starbucks stock right now, you'd be a freakin' multi milionaire. Like, like, people who go, you do anything daily, like Starbucks, or you smoke. You smoke, you use Phillip Morris, and you smoke, you shouldn't smoke by the way, it's bad for you. But cigarettes are over 10, how much, does anyone know how much cigarettes cost? I know nobody here smokes, anybody here know what they cost?
I think they're like eight bucks a pack.
Cause I think they're 12 in Manhattan now, they might even be $13, $14 in Manhattan cause of taxes. If you're gonna do anything daily like that, then buy the stock. So seriously, like no joke, like, gonna go to Starbucks everyday, buy the stock. Gonna smoke everyday, buy the stock. Gonna drink bottled water every day, buy Coke. Most bottled water comes from like... Invest in these companies if you're gonna have a Latte Factor. Now, we're always gonna have Latte Factors, by the way. And people get all pissed off at me for this. You know there's a lot of people love me for this, cause it's changed their life. Nothing I've actually taught in 20 years has had as big of an impact as the Latte Factor. Because, the Latte Factor is a metaphor. People listen to me, it is a metaphor. I am not trying to take your coffee away. I too, am a coffee addict. But I make my coffee at home. For what like, what, a dime or 20 cents. And I make coffee every morning at home, I love my coffee at home. So, but the key here, it's a metaphor. You gotta look at where is the money going in my life. And you need to recognize that, yeah, five to $10 a day is a great way to start to change your life. Cause if you don't believe that you can find $10 a day, then you're never gonna believe that you can find 20, or 40, or 50. This is a mindset. I have gone and done seminars for some of the largest financial services companies in America. I was brought on to do an event for, I won't say who it was, Merrill lynch, (laughter) and the average net worth in the room was like $10,000,000. And they told me before I went on stage, "love everything you do, just don't talk about the Latte Factor". Cause they're so wealthy, they won't relate. I go, "please, it's a metaphor". I'm gonna talk, and I go, " I got this". I get on stage, and like, so you for you, like, for you've got a third, or fourth, or fifth house. You don't even go to the house, right? Like you've got a third home you haven't been to it in 18 months. They're like, he's right... (laughter) So, everybody's Latte Factor's different. It's just metaphor. I did a radio show the host said to me, this is a very popular host, in New York, I won't say who this host was. And he's like, "that's the dumbest idea I've ever heard. Are you seriously trying to tell me that people should cut out their coffee, and that's how they're gonna become financially secure?". I go, "I'll tell you what. Here's what you do, here's the challenge. You track where you're money goes for one week. And at the end of the week, I'll come back on your radio show, and I promise you, you're gonna be shocked by how much money you spent. And I promise you that if we can get some of that money to go into a savings account for you, and do an investment account". Cause the radio host was not doing his 401K plan. "I promise you it will change your life". He calls me back. He says, "I can't believe how much money I spent". First of all he lives in New York. You live in a major city and you have an active social life. He's like, "I go out to dinner every night. I eat out lunch every night". I think he was spending, like, $200 a day on food eating out. Like, you're going, oh my god. But like, in New York, even in San Francisco, it's not hard in a major city, it is not hard to do. He's like, "I have nothing in savings, and I have not used my 401K plan, I've been in this company for 20 years. You were right." I go, "Great, we go do this on your radio show?". He said, "No". So I put it in the book. Now I still tell it ha ha ha. (laughter) So, here's what you wanna do. You need to go figure out what your Latte Factor is. Here's what you do, in the beginning when I taught this, I would tell people to track their expenses for 30 days. Most people didn't do it for 30 days. I suggest you do it for seven days. At a minimum though, I want you to do it for one day. So, if you, like, need a super simple one day deal. Do it for one day. The key to this is, don't change who you are, and don't change how you behave. Just be who you are always. Be normal like you normally are, just have a whole day where you spend money the way you normally spend it. Cause it's, like, a lot of times when you track your food, for example, and then you eat healthier. I don't want you to be any different. I just want you to do what you normally do. So you're gonna track your expenses. If you're married, I want you to do, like, you guys a couple, do it together. Come together and talk about it at the end of the week. And then I want you to take a look at where that money went before I go to the Double Latte Factor. The Latte Factor is about the small ways you spend money everyday. The next thing I'm gonna talk about is what I'm gonna call the Double Latte Factor. This slide's a disaster, but here's the important part of what I wanna teach you right now. When I wrote Start Late, Finish Rich, I had a realization that many of you need to figure out a way to find, not just, small amounts of money, but you need to find large chunks of money. So, if I come over to your house to do a money makeover, the first thing I do, is I go through your fixed expenses. So back here, all theses things that are fixed, I go back and I look at, is there anything that you're spending money on that I don't have to force you to give up. I just need to get you to reduce it. Cable's unbelievably expensive, by the way, I could do a whole rift on cable, but you can take a premium cable package in this example. Look, I know you love premium cable, but let's take it back to basic package, 40 bucks. That's $40 a month in savings. Let's take your premium cell phone bill, let's keep the cell phone, but let's change it to basic. You're down to 30 bucks, that's $40 in savings. Let's take your gym membership. Some people, I can't get my gym to go from $100 to $40. Well, then you need to change gyms. Right, like, look at where you're paying fixed overhead and ask yourself, "how can I get the same exact thing for less money?" But in this case, save 60 bucks. How about eating out? I'm not gonna take somebody who eats out all the time and tell them they can never eat out. This person spent $400 eating out, fine, let's cut that down to $200 a week. That's $200 a week into savings. How about entertainment? Spending $100 to $1,000, let's cut that person spending $1,000, let's cut that down to $400, let's do $50 a week. In this case, what we've helped this person come up with is $540 a month in savings, which is over $6,000 in a year. Now, these are very basic expenses that people who make $50,000 a year have. Every time I do a make over for someone, this is how we find 10% of their income to change their whole life. This is where the money comes from to pay down the debt. Start build a dream account, and start saving. There are two ways to get your Double Latte Factor found. It's go through all your expenses manually and look at what you can renegotiate. There's a new app out, let's see if I have it here. Then we gave you a Latte Factor Challenge form. In these little workbooks, you've got a form that you can go through when you get home. Pull out your expenses and take a look at what's fixed overhead that you can either cut back on, or renegotiate. I'm gonna show you an app right now, that is, it's a new app. And I just preface that with the fact that it is new right? A lot of these technologies are new. So, you just have to decide if you wanna test it. But the new app is called Trim. And I'm gonna talk about Mint.com in a little bit, but Trim does is Trim goes through your expenses, and pulls out all the subscriptions. And highlights it, right, so like, look, these are ones we've all got. Netflix, Spotify, Audible, there's the gym. See people go, "I can't have a gym", there's the gym it's only 30 bucks. Here's the funny thing about gyms, by the way, I'm guilty of this too sometimes, what's the number one time of the year that people join gyms?
January. What's the number one time of the year that people stop going to the gym?
February. If you go to the gym on a regular basis, you know this is true, cause you go show up in January, it's like a nightmare. People all over the place, you're like, "I can't even get on a machine". And then in three weeks they're all gone, right? If you're one of those people you should get rid of the gym membership. Get yourself to go outside and go for a walk. You'll save, in most cases you're gonna save $1, to $1,500 a year on something that you don't use. So, Trim goes through your stuff, reminds you what you're using, and quickly asks you, "you want us to cancel it?". Which I think is kinda cool. This is a nightmare for companies that have put you on subscriptions. By the way, let's talk about that for a second. Okay, everything I'm here teaching you how to do, you guys at home, teaching you guys how to do, everything I'm teaching you how to do is make it automatic. The first people who learned how to make it automatic was the government. The government figured out that you people can't budget. Now, they can't budge either, but that's a whole other story. So, they figured out in the 40s that the only way they could run the country was to take the money from us automatically. And they've been doing it ever since. Now, the next company that came along that started automating payments was actually the gyms. Because what would happen is people would join gym, and come February, March, they weren't going. And they wouldn't pay for it. So then they started that whole thing where you would come in the gym, and they'd say, you need to sign this form, and we're gonna debit your credit, your checking account Do you remember that?
Yeah, Cosmopolitan did that.
Yeah, I mean, this was like a big deal. And like, magazines, and all the things that they send you. Everything today is have a free trial subscription, try it for two weeks, try it for 30 days and then we'll bill you. And so we go, especially on the phones today, it's so easy. We go, "okay, I'll try that". And then the next thing you know, there's all these little fees. But people, you think about them on a monthly basis, like, I like Netflix actually, but Netflix is eight bucks, it's not eight bucks, it's $100 over the year. You have to take every monthly fee and ask yourself, when you sign up for something that costs 50 bucks a month. It's not 50 bucks a month, it's $600. Like all these businesses now that send you these samples boxes. If you watch Shark Tank, everyone wants to send you sample box of stuff. It's 50, 100, 200, it's not. It's 1,000 or 2,000 for the year. You need to run the number out for the decade. You need to go, that little subscription that's 100 bucks a month, no it's $1,200 for the year, which means it's $12,000 for the decade. Now piss yourself off and go out two or three decades, and you're gonna be like, holy, this little subscription could cost me 50 grand? You know, I used to talk a lot about storage fees. I mean, my god, we spend billions on storage fees. We have so much stuff in America. Now, we have, we can't fit it in our garages, so we pay someone to store it for us. We lock it up, and then every year we go back, once a year, we just visit it. Is it still there? Yep, don't need any of it, okay. And we keep paying for it. So, that's some techniques. One more technique, or here's an online calculator for you. This is a place that you can go on my website davidback.com, at the bottom of the website says Latte Factor Calculator. You can calculate your Latte Factor, you can print the little worksheets, and you can just run some numbers for yourself to see what they're worth. And with that I wanna go and answer your question. What do you do about these kids, and all these expenses. Everybody sort of sighs, you've got kids. I have two kids, and it is hard. I mean, I'm with you. I'm constantly amazed by the expenses that I'm not expecting to come up. But, 80% of the expenses that happen, are actually reoccurring, right? Like, when I look at the expenses for the year, if I really think it through, 80% I pretty much know they're coming, and then there's 20% that I don't know what's coming. Couple ways to do that, is you just look at the numbers, and go alright, I'm gonna have to be putting money aside in the kids account. See I can have a whole other account here if I wanted. I can have eight, cause I don't think I would put the kids in a dream account. I think I'd put the kids in, you know, they're really a regular bill, but what you could do... See I always learn from everybody else, is you could add another category here. I don't know where my pen went. You can add- It's behind me? Oh it's in my back pocket? See, that's good. You could have another category in your life, by the way, sometimes people, they do exactly this, they go, "okay David, I have seven of these", but they actually create 10. You can create a whole other category, you can stick it in here, we'll call that eight. And you can have a kid's account, and you can literally just say, you know what, I know I'm gonna have these expenses I wasn't planning on. And so I'm gonna have to put money every month into that account to be ready for it. Here's the thing about money. What stresses us out is the unexpected. It is all the unexpected things that we're like, we're not planning for it. And then it comes and whacks us upside the head, and so the more we can do to financially think through these things that we know are gonna come, then the better off we are. And the last thing I'll say about kids is, it is okay to say no. And I, I used to say that, and I didn't have kids. So this the whole thing about theory and reality, right, like, people get up and talk about how to raise children who don't have children. You guys blow my mind away, like, there are gurus out there talking about how to raise kids, and they have no kids. Everything is theory until you have a child, right? And then you read these books, and by the way, I have so many of these kids books, cause I'm a veracious reader, I'm into self-help, I always want, how can I be the best dad I can be, I'm starting to get this stuff figured out, and then the kid gets older and everything changes. I'm like, oh god I need the next book. So, I think I probably spoil my kids too much. That's the truth. I think most parents probably feel like that. But I think I probably spoil my kids too much, and Jack and James, if you ever watch this, it's probably true. And you know it's true actually. But I also say no. And I'm starting to say no more often. And some of it's basic no stuff. Like, I'll give you an example. And, I didn't even get to use this. I was gonna use this as a prop, cause I talked about coffee, and I wanted to say, you know, it's not just coffee. It's cigarettes, it could be bottled water. How many of you remember where this used to come from? This is an 11, no 12, the last time the numbers came out this was a 12 billion dollar a year business. I actually told these guys I need a bottle of water here as a prop. And they said, "it's California, we don't actually have bottled water here, create it live". So I had to go pick one up to use as a prop. I don't let my kids buy bottled water as a small example. When we go out to eat, and we're at a... We go skiing, and they want water. I'm like, "ask for the free cup, you guys are gonna go over to the tap and you're gonna get the water". And in the beginning they would go, "come on dad, seriously?" I'm like, "this is three bucks. There's two of you, that's six bucks, and then you're not even gonna finish the water, and then I'm gonna be all pissed off that you just spent six bucks on water. Go ask for the free cup and go get the water". Now they don't ask. So, it's a small example, but it's an important example, at least I think for my kids. Because I want my kids conscious of what things cost. And now as my kids are getting older, I used to always have theories about how you teach your kids about money, and now I'm trying to teach my kids about money, and I'm still going through the process. I'm starting to really talk to them about what things really cost. And how blessed they are that I'm paying for it. Because, this stuff's just not free. And one of the things I do everyday, is we do a positive focus in our house. And I ask them what they're grateful for, and at the end of our weekends we do a recap, and I say, "so what was the best part of the weekend, what are you most thankful for?". And my, on the drive home, my seven year old James, said, "Daddy, I'm really thankful that you took us on this weekend skiing because I know it's really expensive, and now I'm really learning how to ski. And if you didn't pay for us to go skiing, and you didn't pay for the ski lessons, I couldn't do any of these things". I'm like, okay, seven years old, he's starting to recognize it. So, I hope that helped a little bit.