By David Bach
Money began burning a hole in my pocket from an early age.
My grandparents were forever slipping me $20 bills. My grandmother called it pin money. Buy yourself a sandwich, she’d tell me. I was 11 years old. When my parents protested, my grandfather would say that a boy should always have cash in his pocket. He knew what it was like to be broke. My grandfather talked about growing up in a family that was so poor they couldn’t even afford to pay attention. Anyone who says money can’t buy happiness has never been poor, my grandfather said.
No sooner did I get the cash than I was on my bike or the bus and off to the comic store. I’d spend every dime. When my parents complained about my free-spending ways, I said the comic books were a smart investment that would one day pay for my college education.
I eventually discovered girls and ditched the comics at a used book store for $40. I started to spend a small fortune on sports and rock’n roll magazines. When my parents complained about the stacks of Hockey News and Rolling Stone magazines creating a fire trap in my bedroom, I said this was a smart investment that would get me a date.
These days, my nightstand is overrun with The Atlantic, Vanity Fair, Fast Company, FORTUNE, Time, Newsweek, Inc., Esquire, Canadian Business, The New Yorker and Next American City magazines. And when my wife complains, I have no excuse for what bestselling author and financial expert David Bach calls the Latte Factor.
“The Latte Factor is the ultimate metaphor for how we spend money. It shows us the way small amounts we spend daily, on little things like fancy coffees and bottled water, can literally add up to a fortune. It is not about giving up your favourite cup of morning coffee at your favourite coffee shop. It’s about considering where your money really goes and asking yourself is this spending really worth it? What else could this money be doing for me?”
So for those of us who are tired of living in the shadow of Debt Mountain, it’s time to take the Latte Factor Challenge and get our discretionary spending in check. Start by identifying your Latte Factor. Now figure out what your Latte Factor is costing you every day. Every month. Every year. Download a calculator app for you iPhone (which may well be your Latte Factor) and figure out what you’re going to spend over the next 30 years and how much you could earn if you banked the money instead.
Cutting back on unnecessary expenditures frees up cash. “And the more extra money you can put aside, the stronger your financial position will be,” says Bach.
Now that we’ve got our Latte Factor figured out, it’s time to tackle credit card debt. Bach’s come up with something he calls the DOLP system, or Dead on Last Payment. The DOLP system gives you a plan of attack for prioritizing your debts and establishing the pecking order for paying off your cards.
Divide the outstanding balance on each of your cards by the minimum monthly payment. A $1,000 balance on a VISA card with a minimum monthly payment of $50 gives you a DOLP number of 20. The card with the lowest DOLP gets ranked number one. Every month, Bach advises that we make the minimum payment on every card. And we then throw as much money as we can spare at the credit card with the number one DOLP ranking.
“The DOLP system works by identifying the card you can pay off most quickly and then having you pay it off first,” says Bach. “The point of doing this is to reduce the number of different cards you owe money on as fast as possible.”
Bach offers up eight other steps to get your financial house in order. And the timing couldn’t be better as we come out of the Great Recession. “I believe that the post-recession period we’re in now offers a once-in-a-lifetime opportunity to build wealth and start over,” says Bach. “Yes, the economy did have the equivalent of a heart attack. But don’t think that means the rules for the steady, lifelong accumulation of wealth have somehow changed.”
Jay Robb works and buys his magazines in Hamilton and blogs at jayrobb.typepad.com.