Yesterday, I had a wonderful conversation with an Associated Press reporter who was writing a story about teaching children how to be frugal. The discussion wound around through several topics, eventually coming back to the idea that many people (like, for example, Ramit) do not like frugality because it doesn’t give you the “big win” and that people don’t like giving up things like lattes.

She herself gave an example of this. She lives in a major metropolitan area and lives in a small apartment, which means that, in order to entertain friends, she has to do it outside of the apartment.

My response to her was simple: one of her key values is entertaining friends, so that shouldn’t be an area where she cuts back. Instead, she should cut other areas to the bone, and I mentioned making your own laundry detergent.

Why the “latte factor” has problems

David Bach has long been one of the most well-known personal finance voices out there. He’s written a small truckload of personal finance books and reached a lot of people.

One of his most well-known ideas is that of the “latte factor.” To put it simply, it means that if you simply stop buying a latte each day and save that $5, you’ll begin to build that into a great deal of wealth. $5 every day for a year adds up to about $1,800. Investing it at 8% interest and repeating for two decades gets you just under $83,000. That’s just from avoiding a single latte a day.

The math there is absolutely correct – and the concept works, too. If you cut something small out of your life and consistently save the money from that cut, you’re going to end up with some serious change over time.

The problem is what you’re giving up. The “latte factor” of course refers to coffee – something that’s inessential to basic life, something that’s purely a treat. Yet, for some people, a latte a few times a week is a significant part of their emotional happiness. They rely on that sweet flavor and that little caffeine boost and it fuels them throughout a challenging day.

When you take away that latte – from some people, mind you, not everyone – a very noticeable part of their spice of life goes away. The latte is the big treat in their day that really brings them a shot of happiness and makes the day easier. Taking that away makes their day much drearier.

That’s the inherent problem with the latte factor: when you apply it indiscriminately to everything in your life, you’re going to chop away things that are unimportant – but you’re going to also whack away things that are really important to you.

I prefer the “laundry detergent” factor

Everyone has different little things that make their life happy and bearable. For some people, it is that morning cup of coffee. For me, it’s having books to read and a game to play.

The trick is figuring out which of those little thing really does brighten your life – and which of those things don’t. What you’ll find is that when you really dig into this question, you begin to find that surprisingly few things really make you significantly happy (beyond the initial burst of pleasure at acquiring something). An awful lot of things we buy are part of a routine or done to make others happy or done because we’ve believed that it’ll make us happy when it really doesn’t.

That’s the reason I prefer the “laundry detergent factor” to the “latte factor.” Some people get a great deal of personal pleasure and joy from their morning latte. I’ve yet to meet someone whose life is made substantially better by their decision to buy Tide over another laundry detergent.

Thus, I usually tell people to make their own. You’ll save around twenty cents per load of laundry with a homebrew detergent, and it takes about ten minutes to make a batch that will handle fifty loads. Quick back-of-the-envelope math tells you that making a batch of this stuff earns you about $10 (after tax) in ten minutes.

Once you’ve done that and seen how easy it is to save money while living a little cheaper and not reducing your quality of life, start searching for other methods to do it again. Install a programmable thermostat to whack your monthly energy bill. Properly inflate your car tires to improve your gas mileage. If you don’t read magazines much, cancel your magazine subscriptions. If you rarely watch television, drop your cable. Make a simple price book and figure out the best value grocery store around you (unless, of course, you get deep personal value from shopping specifically at Kroger’s).

If something seems difficult or makes you deeply sad, don’t be afraid to back off. You’re probably hitting on something important to you and, unless you’re in deep financial straits, you’ll find more success by leaving those areas alone.

Good luck!