Want to retire early? Tired of living paycheck to paycheck and wondering how you are going to pay your bills this coming month? Well, snap out of it! Things do not have to be this way.

I want to introduce you to a concept, that if used, may be so powerful for you financially that you will never have to wonder again how you are going to pay your bills. So powerful that you can still have fun and save for your future. It is called the Latte Factor.

This concept comes from Certified Financial Planner, author and speaker, David Bach, who has written several great personal finance books, including New York Times Bestseller, "The Automatic Millionaire," and "Smart Couples Finish Rich." He has also made appearances as a guest on the Oprah Winfrey Show, demonstrating to average folks how they can retire rich. 

The latte factor is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself. Putting aside as little as a few dollars a day for your future (into a retirement account) rather than spending it on little purchases such as lattes, fancy coffees, bottled water, fast food, cigarettes, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.

Here is an example of the magnitude of this concept:

$5 per day (the average cost of a latte and a muffin) x 7 days = $35 per week

$35/week = $150/month

$150 per month invested at a rate of 10% annual return =

1 year = $1,885
2 years = $3,967
5 years =$11,616
10 years = $30,727
15 years = $62,171
30 years = $339,073
40 years = $948,611

Can you believe how quickly that adds up? The important thing is to find exactly what your latte factor is. It does not have to be an actual latte. For some people it could be cigarettes, for others drinks after work, still for others going out to lunch every day, or the newest article of "Entertainment Weekly" from the newsstand.

Oh I can just hear the readers of this article screaming : "but I deserve to have a little fun and spend money going out to dinner each week, I work so hard for it!" Okay, okay, I completely agree. Those were my initial thoughts when I was introduced to this concept also. Just so you know this idea is not about complete and utter deprivation.

Instead, it is about watching those little things: the dollar here, the five dollars there. You can still go out to eat, just make sure you are not doing it every single day. Instead, save your money for something really good, like Friday or Saturday night. A benefit to doing it this way is that you will feel like you have truly earned it and your bank account won't be screaming uncle all the time.

The latte factor can change your financial well being drastically! If you don't like the idea or are turned off by it, I would invite you to give it a try for one week and see if there is a difference, and if you can tolerate it. I am sure you will be happy to see that it works great. Enjoy! 



Dan Olson writes for KSTW-TV in Seattle. All opinions expressed in this column are his.