Enter your daily spending on small items, the annual return rate you could earn if you invested that money, and the number of years you plan to invest to calculate the future value of your savings. This is known as the Latte Factor, a concept that shows how much small, regular expenses can amount to over time when invested.
Latte Factor Formula
The following formula is used to calculate the future value of your savings based on the Latte Factor.
FV = DS * left(frac{(1 + RR)^{n*365} - 1}{RR}right)Variables:
- FV is the future value of your savings ($)
- DS is your daily spending on small items ($)
- RR is the annual return rate (expressed as a decimal)
- n is the number of years you plan to invest
To calculate the future value of your savings, multiply your daily spending by the result of the compound interest formula for daily investments over the number of years at the given return rate.
What is the Latte Factor?
The Latte Factor is a metaphor for the unnecessary little expenses that we incur on a daily basis. It is based on the idea that if you were to save the money you spend on small items like coffee, snacks, or eating out, and instead invest it, you could accumulate a significant amount of money over time due to the power of compound interest.
How to Calculate the Latte Factor?
The following steps outline how to calculate the future value of your savings using the Latte Factor.
- First, determine your daily spending on small items (DS).
- Next, determine the annual return rate (RR) you could earn if you invested that money.
- Next, determine the number of years (n) you plan to invest.
- Next, gather the formula from above = FV = DS * ((1 + RR)^(n*365) – 1) / RR.
- Finally, calculate the future value of your savings (FV).
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Daily spending on small items (DS) = $5
Annual return rate (RR) = 7%
Number of years (n) = 30
