The most common debt-reduction strategies always seem to focus on cutting back. Made popular by David Bach with his “Latte Factor”, the idea is that by eliminating these tiny transactions you make every day you’ll end up saving a ton of money that you could be putting towards debt or investing.
The True Price Of Coffee
For example, if you’re used to buying a fancy coffee from Starbucks every morning on the way to work at $4 a pop, that’s $20 a week, $80 a month, and $960 a year.
Does that sound like a lot? It’s easy to justify it to yourself, but it’s just as easy to tell yourself that you could buy a travel mug for $20 and make coffee in the morning for pennies.
Other Examples Of The Latte Factor
There are always ways you can cut expenses.
- Cancel the data portion of your cell plan and save about $20 a month, or $240 a year.
- Cancel a couple magazine subscriptions and save a few hundred dollars a year.
- Stop buying $10 lunches at the food court and bring them from home (cheaper AND healthier) and save over $1,000 a year.
- Cancel your cable package and use Netflix and a decent antenna to watch almost everything you want to and save over $600 a year.
The point is to pay attention to where your money is going and make sure you’re not spending simply out of habit.
Questioning The Latte Factor
You’ve seen how small cut-backs can save you thousands of dollars a year. But is that really the best way to accelerate your debt repayments? After all, reducing expenses reaches a limit at some point. Let’s look at things another way.
How Hard Is It To Earn $4 A Day?
What if you allowed yourself to buy that coffee, but only if you actually earned an extra $4? What could you do to earn an extra $4 today?
To get some ideas, take a look at www.fiverr.com. People offer products and services, all for $5. Can you create something, teach something, or do something interesting? Chances are someone might pay you $5 to do it. Boom! There’s your coffee for the day.
$4 or $1,000?
The great news about earning an extra $4 is that you’ve broken through a barrier. $4 is not a lot of money, but it’s more than $0. The exciting thing is that once you’ve figured out how to earn $4, it’ll be easy to earn $100, and then $1,000.
At a typical job the pay you receive always seems a bit disconnected from the work you do. You work for two weeks without seeing any money, and then a nice cheque appears. It’s hard to link up what you did last Tuesday with some of the money you received today.
But earning extra income the way we’re talking about is exciting, because it’s easier to see the immediate payoff. Whether it’s doing some freelance work on the side, getting a part-time job, or even working extra hours at your current job, that extra work will translate into identifiable dollars that you’ll be very excited about.
Go For The Big Wins
Cutting expenses shows you’re paying attention to your money, which is important – but it’s the harder way to your goals. Start thinking creatively and focus on creating an extra income for yourself. No one is suggesting you quit your job and start a business. You need your salary to keep things stable. But think about your skills, talents, and what people ask you for help with, and look at what other people are doing with those skills.
Who knows, you might find an entirely new career that you’d never considered.