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Beyond the Latte Factor

David Bach’s Latte Factor has been talked about and debated on just about every personal finance blog there is.

The Latte Factor simply states that by cutting out small daily expenses – such as lattes or other repetitive indulgences – and compounding the savings over a long period of time, you will end up saving a substantial amount of money. $25 per week at 5% spread over 35 years, and you will have almost $100,000. You can’t argue with the math.

I think the Latte Factor is great, because it forces you to really examine your spending on a daily basis – and it’s so easy to agree with the principles of cutting out small daily expenses. However, I have a few problems with the Latte Factor message.

It de-emphasizes larger purchases. If you spend all of your energy scrutinizing every small daily purchase, you might miss saving money on larger, more important items – like vehicles, housing, and recurring bills. So if you’re cutting out lattes, but overpaying on everything else, you’re not any farther ahead.

It discourages people from doing more. Finding ways to save on the small things is great, but it’s not enough to really make an impact. Aside from looking at cutting back on the larger purchases (see above), you also need to be looking at ways to cut fixed expenses, and even increase your income.

Finding a way to “save” the savings. Before you pat yourself on the back for cutting out lattes, lunches out, and other small purchases, how are you saving that money? Unless it gets funneled into a savings account every day, chances are the money will bleed out of your account in other ways.

Obviously, making savings automatic is a no-brainer. There are banks like ING Direct and PC Financial that will allow you to set up automatic deposits from your chequing account to your savings account. However, if you usually spend $10/day, you might feel good spending $0 one day, only to turn around and spend $20 in frivolous spending the next day (just because the money is in your account) – making your net savings a big fat zero.

Savings can only be considered savings if you actually save the money.

So the only way to really make this work is to log into your bank every evening and make a deposit of X dollars into your savings account, or towards your debt. And not that many people are willing to go through all that hassle. Or maybe they’ll do it once a week, and potentially forfeit some of their weekly savings due to impulse spending. Trust me, I know how hard it can be to keep money in your account when it’s so tempting to spend it!

Don’t get me wrong, for years I was all about the Latte Factor – no matter how cumbersome it might have been. And I still appreciate the concept – it’s why I post my weekly spending recaps. I want to know exactly where my money is going. But now that I am out of debt and living a more balanced lifestyle, I no longer make daily transfers onto my debt or into my savings account. Eliminating unnecessary and repetitive spending is just one small way to achieve financial independence.

If the joy you get from your daily indulgence is important to you, and you fully realize you will end up potentially spending tens of thousands of dollars on it over the next 30 years, go for it. I went to Starbucks 106 times this year (for a total of $320.93), and I don’t regret it one bit. :) What’s the point of working hard if you have to cut out the small things that can brighten up your day?

For me, it’s all about spending on what makes me happy, and cutting back on everything else. Remember, your spending reflects your priorities.

Do you use the Latte Factor to help you achieve your financial goals?

Frugal ways to keep your laundry costs down

Washing clothes can be expensive – especially if you do it on a weekly basis. A bottle of brand name detergent can cost as much as $10, dryer sheets can cost up to $6 a box, and when you add to that the cost of hydro, keeping the clothes on your back clean can quickly add up.

But saving money on laundry – whether it’s done at home, or at a laundromat – doesn’t have to be expensive. And it also doesn’t mean you have to buy more socks/undies just to make the time before laundry loads last longer (admit it, we’ve all done it before), or wear anything inside out to get a second day out of them. :)

Here are a few ways you can keep your laundry costs down:

Make your own soap

You can save up to 90% on the cost of laundry detergent by making it yourself. Not only is it cost effective, but you will also avoid the toxic chemicals found in conventional detergents. Plus, making your own batch will only take about 20 minutes. Try this easy recipe I found on the David Suzuki Foundation website.

Use less detergent

Try using half of the detergent amount suggested on the packaging, or dilute your liquid detergent with water. Your clothes will come out just as clean, and you will get twice as many loads with one detergent bottle.

Want to save even more money? If your clothes don’t have hard-to-get-out stains or a lot of dirt on them, consider skipping the detergent altogether! I remember reading an article online a few years ago that said most modern washing machines will get your clothes clean just by agitating the laundry in water.

And a few months ago, I did two loads of laundry in order to test out this theory – one with detergent, and one without. Both loads came out clean, and the only difference was that one load smelled like detergent.

Skip the dryer sheets

Dryer sheets are used to eliminate static cling, soften clothes, and add a fragrance to laundry. However, over the past few years  I’ve become sensitive to fragrances. I used to buy unscented dryer sheets, but since moving to Germany, I just stopped using them. As long as you make sure not to over-dry your clothes, they will come out cling-free.

If you really like using dryer sheets, try cutting the sheets in half for an easy 50% savings. :)

Hang-dry your clothes

In order to save on the cost of using the dryer, I hand wash all of my delicates, and hang them to dry instead. I also hang dry almost all of my brightly coloured clothing, jeans, and most blouses. In fact, the only things that usually end up going in the dryer are sheets, towels, and socks.

I don’t have access to a clothesline in my apartment here in Stuttgart, or in my townhouse in Vancouver, so I use a small drying rack (and sometimes chairs), and make sure to keep the window open.

Air out sweaters and dry-clean only clothing

If you haven’t soiled your clothing, try airing them out instead. if you don’t have a backyard or a deck to air out your clothes, hang them by an open window for a few hours. Air-drying my sweaters, dresses, and pantsuits after I wear them means that I rarely visit the dry cleaner.

Just don’t wash as often

If your clothes aren’t dirty, and if you can air dry them to get rid of any smells, you don’t really need to put the through the wash every time you wear them. Having to do less loads of laundry can add up to significant savings, especially if you have to use a laundromat. The one close to where I live costs approximately $4 per wash and $0.65 for 10 minutes in the dryer.

Real Simple put together a “When-to-Wash-It” Handbook that can act as a good guideline on how frequently you need to launder your garments. For example, they suggest washing a pair of jeans after 4 or 5 wears. However, sometimes I wear my jeans for only a few hours at a time, and as a result, I would only wash them once every 3 or 4 weeks.

Do laundry during off-peak hydro hours

You will be able to cut your energy costs substantially by running the dryer during off-peak hours. Contact the hydro company or check online to find out the exact times. THe same goes for people who use laundromats – during off-peak hours, you might be able to save a few dollars off each load of laundry. And over the course of a year, that savings can add up significantly!

What tips do you have for saving money on laundry?

A beginner’s guide to haggling

While it is the norm to negotiate when buying a home or a car, most of us either don’t bother to haggle down the price of smaller items, or are too embarrassed/shy to attempt it. In fact, I remember how intimidated I was the first time I tried. I was afraid they’d say no, and I was afraid of looking cheap. But after a few successful negotiations, I started to think of it as a lot of fun. And when we had the opportunity to shop in the Grand Bazaar in Istanbul a few weeks ago, I put my haggling skills to work. :)

Over the past few years, I’ve haggled for lower prices almost anywhere – from flea markets, to bakeries, to clothing and department stores. Discounts will always be there for the taking – if you know what to do.

Here are a few things I’ve learned along the way:

Pick the right time

It might be hard to keep a salesperson’s attention if you try to haggle during peak shopping hours. Try to stay away from crowds and do your shopping in the mornings or evenings.

Earlier this year, I went to a local flea market one afternoon in search of a bicycle. I found one for $75, so I politely asked if that was the best price he could offer me. Because there were plenty of shoppers at the market, he declined to go down in price by more than $10, so I walked away. Later that day, when the flea market was winding down and merchants were packing up, I saw the bicycle hadn’t sold. Instead of asking for a better price, I told him that I only had $50. He accepted my offer, and I rode away with a $25 savings.

In Istanbul, I found that I had the best luck at the end of the day. Shop keepers were tired and looking forward to closing up shop. Plus, if there a lot of people around, they are more reluctant to bargain with you in public because they don’t want other customers to know just how low they would go for a sale. I ended up buying multiple silk scarves for 75% off their initial asking price (which, p.s., is so ridiculously inflated to begin with), but Nic was the King of Haggling when he got the price of some really nice shirts down from €60 each to €15 for two.

They expect you to haggle

In fact, most merchants, shop keepers, and people holding garage sales usually mark up their prices in anticipation of eventually coming down in price. I mean, I’ve never paid asking price on something I’ve bought on Craigslist before, and I’ve also never sold anything at asking price either. When I sold concert tickets on Craigslist a few years ago, I marked up my asking price by $15 each, and I ended up selling them for about $5 more than what my true price was.

Act interested, but not too interested

Part of the game is to become friendly with the person selling what you want. Be relaxed, and ask questions about the item. Ask where it came from, what it’s made of, if it comes in other colours, etc. The key is to appear interested, but not too interested. Don’t let on that it’s the coolest thing you’ve ever seen, and that you have to have it. You don’t even have to say the words, they can tell by the way you touch or look at the item.

I remember someone once telling me that as soon as you’ve handled the product, you get way more attached to it than if you keep it at a distance. So if I really like something, I’ll look at it, walk around (or even leave the store), then come back a while later after I’ve thought over the purchase, and how much I’m willing to pay for it.

Offer to pay in cash

Merchants have to pay a transaction fee whenever somebody makes a purchase with a credit card. Offer to pay for your purchase in cash – in exchange for a small discount equivalent to the transaction fee. This tactic worked well when shopping in tourist shops. In Greece, I was offered anywhere from 10% to 15% off on everything from fridge magnets to hand carved chess sets, as long as I paid in cash.

Point out the flaws

If there are flaws that can easily be fixed at home – like a shirt missing a button, or a small make-up smudge on the collar, pointing out the flaw to a sales clerk will usually result in a discount on the item. I’ve gotten anywhere from 5% to 15% off. Even if it’s something small as a bit of dirt on the bottom of a pair of shoes – a flaw is a flaw.

Most retailers will also offer discounts on floor models, demos, or returned items. Sometimes they’re put out with the regular stock, but identified with some sort of “return and inspected” sticker on it, but if you don’t see any on the floor, just ask a sales clerk if they have any in the back. Last year, I received a $120 discount on a video camera because I agreed to purchase one that had been previously returned, and a few years ago I was offered a $350 discount on a $1,200 laptop if I took the demo model.

Compare prices with other retailers

This seems pretty obvious, but make sure to comparison shop and research prices before haggling. If you can show a shop keeper or clerk that the same item is selling elsewhere for a lower price, they might match it. Comparison shopping works for everything from merchandise to internet and cable bills, to vacation packages.

Just ask

When it comes down to it, just being polite and asking for a bulk discount, or even a freebie thrown in can’t hurt. It might feel uncomfortable at first, but remember the worse thing they can say is no. And if they aren’t able to give you a discount, they might know if an upcoming sale that will give you the discount you’re looking for. Also, a smile on your face, and a sense of humour will go a long way.

Asking for discounts also works when you’re shopping online. A few years ago, I wanted to buy a watch I had seen in a department store. I went on eBay and found it for 30% off the retail price. Instead of bidding on a listing, I searched the completed auctions on eBay to find a listing that had ended recently but hadn’t sold (and also hadn’t been relisted). I then e-mailed the seller and offered to buy the watch from them directly through PayPal for 15% less than they had listed the watch on eBay. The seller agreed. I got what I wanted for an additional discount, and the seller didn’t have to bother with re-listing the item on eBay and having to pay eBay’s seller fees.

What has been your most successful haggling attempt?

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