'Latte factor' that skims the cream from your cash

We have become a nation of fritterers, but it's not too late to reform, says Christopher Middleton

They call it the "latte factor" - the syndrome whereby we blind ourselves to what we spend on our little skinny-with-extra-cinnamon indulgences, and then can't believe our eyes when the bank statement arrives.

They call it the "latte factor" - the syndrome whereby we blind ourselves to what we spend on our little skinny-with-extra-cinnamon indulgences, and then can't believe our eyes when the bank statement arrives.

It's a term whipped up by American financial guru David Bach, author of The Automatic Millionaire, with reference to the habit of splashing out each day on a breakfast or lunchtime Starbucks - and not noticing how much you're actually spending (£75 a month; more if you have the brownies).

Back in the year 50BC (Before Costa), the equivalent of the latte factor would have been the old grandparental adage "look after the pennies and the pounds will look after themselves". Sure enough, the average poundwise pensioner today can spot straight away that £2.50 is a lot of money for a cup of coffee; the rest of us, however, find this not so easy to do.

Partly this is because we don't have to. When everyone got paid in cash, the weight of coins in your pocket told you when you were running low. These days, though, the first we know about it is over breakfast, when we get a snap, crackle and slap in the face from the credit card company. Even then we're not on bread-and-dripping for the rest of the month. Whereas your old-fashioned High Street grocer could - and would - turn down your request to put goods "on tick", Messrs Mastercard and Visa, purveyors of debt to the masses, are altogether more customer-friendly in the way they allow you to borrow and borrow (at 17.9 per cent APR).

So what exactly are those little, leech-like outgoings that are quietly draining us of our financial lifeblood? It seems the only foolproof way to detect them is to undertake (see below) a full and forensic examination of one's "sundry" purchases - day by day, item by painful item.

The good news is, once you've shone the bright light of truth into those dark corners of your expenditure, you may find yourself emerging from the red for good. "Everyone is always tight, whatever money they make", declares Bach. "Saving has nothing to do with income - and everything to do withlifestyle."

MONDAY

Starbucks Americano: £1.99

Return train to town: £5.00

500 sheets of A4 paper from Stationery Box: £2.99 (Economy) Tracksuit bottoms from Primark: £4 (cheap or what?)

* Excess Item: Starbucks coffee at £1.99

All right, the Americano I get from the nice, warm Starbucks outside the station costs a lot more the 60p cup of polystyrene coffee I could get from the draughty sandwich kiosk on the platform. Questions I have to ask myself, therefore, are:

1. Does the expensive coffee smell and taste nicer? Yes.

2. Is it worth spending £1.39 a day more? Yes.

3. Would I like to save £27.80 a month (that's £1.39 x 20 working days)? Ah, well - yes.

4. So will I buy the cheaper coffee from now on? I'll try.

TUESDAY

Coffee: 60p (hold nose)

Return Tube ticket to town: £4.40 (saved 60p by walking to station in Zone 2 instead of 3)

Lunchtime M&S sandwich: £1.15

Packet of crisps: 27p

2 x chicken tikka masala ready meals from Sainsbury's: £6.58

* Excess Item: Ready meals at £6.58

As a nation, one glaring area of self-indulgence is our consumption of "convenience foods", which at £16.49bn per year is more than we spend on fruit, vegetables, milk, cheese and eggs combined. In fact, for every £1 spent on food in the UK, 30p goes on crisps, tortilla chips, frozen pizzas and the like.

For the £6.58 my two meals cost, I could have bought a family-sized chicken that we could have had roasted one night, and served up cold or in a casserole the next. With enough money left over for vegetables.

WEDNESDAY

Coffee 60p (yuk, not sure I can keep this up)

Return Tube to town: £5 (no time to waste on walking)

Baked potato with melted cheese at The Mad Bishop and Bear pub, Paddington Station: £3.75

Evening paper: 40p

* Excess item: Baked potato at £3.75

Let's face it - cost of one big potato 20p, amount of gas used baking it 2p, plus sprinkling of cheese 10p. Domestic total 32p - which means I paid about a 1,170 per cent mark-up.

Still, I'm not alone. Between us, we spend £24.78bn per year in cafes and restaurants. That may only work out at £400 per adult per year, but then our entire grocery bill for the year only comes to £926. So every time we eat out, we blow around 40 per cent of the week's housekeeping!

Samantha Downes, editor of The Virgin Money Guide, says this "lifestyle" money pit is one of the deepest we dig for ourselves. "A life of fast food, eating out and dumping clothes at the dry cleaner or getting your shirts ironed there - these are all big money eaters," she says. Her advice? Stay in a couple of nights a week, and re-discover your supermarket.

THURSDAY

Coffee: 60p (not quite so bad)

Copy of The Independent: 60p

Copy of Rumours of a Hurricane, by Tim Lott: £6.99

Bottle of Côtes du Rhone: £3.69

* Excess item: Book at £6.99

Alright, The Independent could never be called an inessential extra, but you can't say the same about the book. In fact, we'd all be £130 a year better off if we got our books from the library and our news from the TV and radio. The money-saving website Frugal Living, www.frugal.org.uk, points out that we've already done our bit for literature by paying council tax to fund the library service.

Other suggestions Frugal Living has are to go to the cinema on Mondays (cheap night), to use half the amount of washing powder recommended by the manufacturers, and always to cook as many things simultaneously in the oven as possible.

FRIDAY

Coffee: 60p (found horrid brown powder sludge at bottom)

Triple-decker M&S sandwich: £2.65 (pushing the boat out)

Neutrogena T-Gel dandruff shampoo: £7.50

Outsize Mars bar: 99p

* Excess item: shampoo for my, er, problem, at £7.50

Yes, I could have bought Head and Shoulders for £1.95, but instead went for a more scalp-pampering preparation at £7.50. I may be fooling myself, but I'm not alone - we spend £5.4bn a year on toiletries, as against just £2bn for medicines.

The outsize Mars bar is also a bit of a luxury, though hardly a wallet-buster. That said, we spend more on sweets and confectionery (£7.76bn) than we do on bread (£4.68bn), not to mention the resulting dentists' bills.

SATURDAY

Sainsbury's mini-shopping expedition (for spaghetti bolognese dinner):

4 tins Heinz chopped tomatoes: £2.48

500g minced beef: £2.99

2 bottles San Pellegrino: £1.84

1 bottle Côtes du Rhone: £2.99 (there was a £3.99 one as well)

Newspapers: £2.00

Americano coffee from Starbucks: (£1.99 - I deserve it)

* Excess items: water at £1.84 and chopped tomatoes at £2.48

Designer labels don't all have to be about Armani and Versace: I could have bought a two-litre bottle of Sainsbury's own-brand Caledonian water for just 59p, as against the £1.84 I paid for 1.5 litres of San Pellegrino.

The same goes for the tinned tomatoes - Sainsbury's own brand are 48p, as against Heinz's 62p. Though here it's not just about branding, it's about trying to distinguish between almost identical labels for chopped tomatoes, chopped tomatoes with herbs, peeled plum tomatoes, etc.

I could also have cut the bill 20-40 per cent by going to a low-price supermarket such as Aldi, Neto, or Lidl. It's just that (ooh, get me) I see myself as a little more up-market than that.

As for buying tins with Lo-Value or Economy plastered all over them, I couldn't face the shame of having them in my shopping basket.

SUNDAY

Use of domestic electricity: £1.77 (based on monthly payments of £55)

* Excess Item: None

It can be done! A day without any overt expenditure, and with consumption of domestic voltage kept to a minimum by constant haranguing of children to switch their lights off. When it comes to learning about the latte factor, you can't start them off too young.

CASH LIMITS: THE OLD REMEDIES

How best to keep your spending down? Enter that old-fashioned word "budget". Or "target", if you prefer a more go-getter term.

Simply decide how much you want to save (easy), and work out how you're going to know you've saved it (not so easy).

One classic method is to switch to a cash-only system of expenditure for small items - whereby you allocate yourself, say, £200 a month and physically apportion that money into different envelopes entitled "Lunch", "Coffee", "Newspapers", "Fares" etc. Have one marked "Treats", too, just to keep your spirits up.

You can buy personal-budget software that replicates this on computer, but it's a lot cheaper to recycle used Basildon Bond.