Why “No More Lattes” Rarely Works

Latte Factor

Who would’ve known that all this time we have been pouring caffeine-laced devil’s brew down our throats every morning?! If you’re not aware that the latte factor is the reason that we have poor people in the world, and are most likely the major cause of the growing income gap, increased student debt, and foreclosures, then you haven’t been reading many personal finance blogs lately. Seriously though people, what did poor lattes ever do to you? Why choose to single out that frivolous expense as opposed to our other frivolous expenses? I mean, how many people consume sodas, cigarettes, French fries, booze etc. on a daily basis, yet somehow lattes get to become the whipping boy? They are so hated they even get their own trending title of the “The Latte Factor” to make it all dark and mysterious? Now I must admit, I too have succumbed to the “my site needs a coffee article before it is complete” syndrome myself. It is a useful figure for showing how compounded savings can work.

The Latte Factor Prophet Himself

In case you actually have a social life and don’t read many personal finance blogs, the latte factor is an idea generally accredited to David Bach. It shows just how effective daily saving and investment can be. By taking the cost of an over-priced cup of coffee (seriously, why do these scenarios always use like the Starbucks mocha-frappa-double-choc-frothalicious that costs more than a happy meal) and showing how much money you can garner when the black magic of compound investment returns is applied to it, every personal finance blogger in the world believes they have found the path to true happiness. A sort of financial nirvana if you will. The articles usually forget to deduct what the coffee, cream, sugar etc. would have cost at home, and they usually assume extremely high investment returns, but yes, let’s all agree that cutting back on the coffee could help us out to the tune of a couple hundred grand when we are 103. Sweet.

A Venial Sin At Worst

The bottom line is that this is a tough strategy to enact because it advocates an extremely frugal position. People like a small creature comfort, and if a little coffee (by the way, in Canada we have this magic place called Tim Hortons – it’s kind of a cultural icon – and I get a great double-double there for like $1.50, you should try it sometime) prevents someone from going crazy in this insane world they live in, then hey, let ‘em have it.

The key is to limit the luxuries we spend money on to a level that we are comfortable with and have made a conscious choice to spend beforehand. If you figure that you can spend $100 on “token luxuries” in a given two-week stretch, and you don’t smoke, rarely drink, and hate fast food, then knock yourself out and enjoy the caffeinated heaven that is calling your name.

Everyone has different priorities, so to just casually send someone to frugal purgatory because they like a good cup of java makes little sense to me. As long as people are aware of the long-term sacrifice of the occasional cup of coffee (and how could they not be with the staggering amount of anti-coffee propaganda pouring out of keyboards everywhere), then who are we to tell them no?

As financially-enlightened individuals we often give people a free ride, or a mild rebuke for driving luxury vehicles, investing in mutual funds that have ridiculous MERs, or spending money on gifts that will likely be underappreciated anyway. Yet we feel the need to fill the blogosphere with more coffee-bashing articles than there are hipsters in a downtown Starbucks. Come on guys and gals… we can be better, we must be better. Baristas of the world rejoice, hold your coffee up high and say, “I will staff write one post about the evil bean and it will pay for a week’s worth of my sinful ways.”

What are your thoughts on the latte factor?

 Photo credit: @Doug88888

57 thoughts on “Why “No More Lattes” Rarely Works

  1. This may just be my new favourite article. I love the part about giving people a free ride for driving luxury cars and spending too much on underappreciated gifts. I totally agree it is all about making tradeoffs and not forcing yourself to give up the things that actually make you happy (or sane).though I’m not sure I could justify a daily frappacino for my pocket book or waistline!

  2. I definitely go for a tea or special drink out when I’m out having fun with my family. Probably do this once every couple of weeks. I find it to be a good compromise of enjoying life and not over indulging and wasting money on a $5 drink every day.

    1. The funny thing is that when I was in university I drank at least $5 worth of alcohol per day (obviously focused on 2-3 days a week) and thought nothing of it. Now, because I’ve read so many articles on how bad coffee is I feel guilty just for buying a cup every now and again.

  3. You make an interesting case to save lattes, so to speak. You’re correct that other vices (booze, cigarettes, junk/fast food) don’t get as bad a reputation as lattes for some reason. I suppose the only reason lattes are so often targeted is because, well, they can cost a lot.

    As you mentioned, the popular latte to attack is the expensive Starbucks beverage. I suppose it’s those I choose to criticize because I have a hard time imagining people buying real coffee anymore.

    But yeah, we should just focus on any overpriced, unhealthy vice.

    -Christian L.

    1. Like I said, in Canada, you can get a massive cup of Timmy Ho hos coffee (better tasting than Starbucks for my money) for under $2. They should really start paying me for all this brand awareness!

  4. I always interpreted the latte factor as a cautionary tale about ANY daily habit, instead of an out and out diatribe against store bought coffee. That said, I always bring my coffee from home, so I guess I took it literally.

  5. Haha! I only learned about the latte factor recently, but I will say that for me, there really was a latte factor.

    I used to walk to the local coffee shop every morning and order a regular latte, and often a small snack to go with it. It was a daily ritual I did with co-workers and it cost me about $3-4 per day. It was really more of a habit and once I saw how much it came out to, I was really surprised. If you DRIVE to get your coffee or your lunch, then you’re spending even more money…

    When MMM and I decided to save up to retire before having a kid, my books and coffee (and clothing buying habits) screeched to a halt. I can definitively say that thinking of these things as a “treat” instead of a daily indulgence changes your way of thinking about everything. Just like a monthly visit to get your nails done might become a habit or anything else… it’s more a matter of changing your perspective about how easily we spend money on little things that might be more habit than anything else. And, if you have credit card debt then that daily latte becomes an even bigger deal.

    My guess is that the Latte Factor became popular because a lot of people indulge in a daily trip to the coffee shop. Being able to control your spending in small ways can lead to really big changes… not just with your latte, but in all areas of your finances. If you can’t reduce your latte purchases to twice a week instead of every day, then you’ll probably have difficulty controlling yourself with other purchases as well.

    It’s interesting that it has become a point of such contention between personal finance bloggers, but for us, the little changes are the things that really added up and allowed us to both be home with our child. It was definitely worth it! :)

    1. Oh, I should mention that you should keep your goals in mind when making these decisions, and hopefully the environment too. If you have no debt, then a daily latte might not be a big deal.

      But, I know a LOT of people that have plenty of debt and just drive to Starbucks every morning, idle in the lineup to pick up their drink, and then drive to work like it was nothing. Usually it is a single driver in a giant vehicle as well… so, I guess from my perspective, a latte isn’t just a latte. It’s surrounded by other bad habits as well…

      I guess I’m feeling kind of opinionated today – sorry guys! :)

      1. It’s really simple, if you’re daily trip to get a cup of coffee means more to you than saving the money (as it does for me on occasion) then no one can tell you that it was the wrong decision for you. As long as you want that coffee more than a trip or early retirement etc, then all is well.

        1. Yeah, I guess my point is that the difference between a daily coffee and the occasional coffee can be pretty big.

          If you really are making a conscious decision, then great! But, I think the majority of people do more of this kind of thinking: “need coffee… must get coffee… no time to make my own coffee… will drive to Starbucks….” and they don’t really realize how much it is truly costing them. People often think long and hard about big expensive purchases, but rarely think much about small daily ones.

    1. I hear you on this one Sam. Again, keeping it simple is best, just a dash of milk in mine to protect against the empty calories. I also usually have a canteen of water before/after so I think I’m pretty well hydrated.

      1. I enjoy my coffee with cream and no sugar, so I don’t worry too much about “empty” calories. Definitely hear you about the water sucking effect — when I was at the office I usually had my coffee and then a few cups of water afterwards. I don’t drink as coffee as regularly these days since I, well, have to prepare everything myself instead of having some magical machine dispense it in 15 seconds. ;)

  6. I agree because I believe in conscious spending. If one is actively cutting back on spending they hate, they should be able to spend freely on what matters.

    1. Do lattes matter though? Does a latte make you happier? What if going out to eat every day matters? What if a monthly pedicure is something you can’t live without? Where do you draw the line?

      It seems it’s a matter of re-prioritizing what matters. Giving up a daily latte habit might be quite an enlightening experiment for many people.

      What kind of spending do people hate?

      1. To some people the latte may honestly matter that much. For that matter, the luxury car, or the cigarettes, etc., might matter that much. I draw the line at, “Does this purchase mean more to me than x number of days of early retirment?” If the answer is no, then I put the product down. I don’t put every product down though. As long as the thought process is logical and rationale it can still be different for everyone.

  7. In line with the latte factor, I believe that “small spending” adds up to a big long term price. I’m always weighing the “cost/benefit” of my spending choices.

  8. Of course this is bogus. I used to rent a room from a landlord who had money problems. He tried to save money by ‘turning off the lights’, when he was spending over 200/month on a cable package. The latte factor is a diversion. Anyone i know who can invest latte money and actually get 8% return already has he ability to blow $5 for a coffee.

    1. Now that is an interesting anecdote 6 figure. People that are educated enough to know about investing are already making most of the right choices. Never thought of it that way…

  9. I haven’t read the Latte Factor (but I’m a huge coffee drinker, so maybe that’s why!), but you make an excellent point. Small purchases do add up over time, but they don’t necessarily break the bank if a person is frugal in other ways. I’ve been a Starbucks customer for years, but I did recently start making my own coffee at home most days, but still allowing myself a treat on the weekends. I don’t see the savings yet since it’s been less than a month, but I’m sure I will at some point. However, that savings is going to be very small (under $35 a month).

    1. $420 a year for years at a rate of 8% (not adjusting for inflation of the coffee, or returns) is $117,508.04.

      It always looks interesting when you present it that way, but still, enjoying coffee your whole life is worth something too right? I know a lot of former Starbucks junkies that now prefer to buy the beans and a press and make it themselves. Whatever works…

  10. We all have to decide our own spending priorities. For me it’s a matter of balance. I have a plan for retirement and financing my kids college education. Those are the most important things to me. After that we find a way to make it work with the money we have without going into debt.

  11. For a number of years I bought my coffee @ work every morning. $1.35 a day. I did switch to brew my own (fair trade / organic). It does say me money, obviously but my reason for switching was that I found it difficult to find a coffee made the way I prefer it.

    For example, Tim Hortons – the amount of cream or sugar they put into a cup is never the same. Personally, I find that Tim’s tastes like cardboard so I avoid it usually but when I did drink it I often found my coffee was too sweet as too much sugar was added.

    1. Yeah, there’s a big difference with getting a $1 cup of Tim Horton’s coffee vs. a $3-4 cup of something fancier at Starbucks. Although those that visit Timmy’s might also get a donut or something while they’re there… I hope it’s okay to post this here, but I thought you might find this interesting:


      It’s a good example of how small amounts of money can really add up over time. Coffee is a common example of daily spending that most people ignore since the amounts are so small, but there are a lot of other examples too (like buying books instead of using the library or borrowing from friends). It’s generally hard to be a conscious spender, so when you start doing it (maybe by starting with that cup of coffee), it can snowball into huge savings when applied to the rest of your life.

      1. See I will argue until the day I die that people are way better off using their time and brain power to think of ways to earn more money than cut spending to the bone. Save by being aware of your priorities and realizing what the luxury you’re paying for is really worth. Other than that, focus on creating streams of income and maximizing your ROI and you’re way further ahead.

        1. Haha! And, I guess I will argue the opposite way, although if you put both together, then you will really kick ass! We retired early by cutting expenses only and have been doing great for the last 7 years. I think that at some point, stuff doesn’t matter much anymore and the environment starts to matter more and more, so cutting expenses becomes super easy. I think it’s just a different frame of mind.

          By the way, I do drink a daily latte at home. The cost is less than $0.25 per day. ;)

  12. I think the problem with the Latte Factor is that people take it too literally. It’s just supposed to be an example of how regular small expenses add up in the long run, it isn’t a decree that everyone should stop drinking lattes. People tend to think about big expenses much more than small expenses, and they fail to realize that a daily small purchase (like a latte) could cost even more than a big monthly expense (like your cell phone bill). It’s not about lattes, it’s about the psychology of spending money.

    Consider another example: the Butterfly Effect. It’s named for a specific example of the phenomenon, a butterfly flapping its wings altering weather patterns. But the Butterfly Effect is applicable to any system where a slight change in the initial conditions can effect the outcome. Nobody complains that the Butterfly Effect is picking on butterflies, so why do I see so much contention against the Latte Factor?

    1. Cool comparison with the Butterfly effect.

      I would argue that the Latte Factor is actually the reverse of people concentrating too much on big things at the expense of little things. Constantly trying to save a buck or two here or there is immediately wiped out if you don’t shop around for a better mortgage rate for example (which few do) or get out of mutual funds that charge ridiculous MER fees.

      1. Well I agree that the big things are important as well, but I think the point of the Latte Factor is that psychologically, the little purchases don’t seem as detrimental to your finances as the big purchases. It sounds like your concern is that because there’s so much talk about the Latte Factor, it would be easy to read a few personal finance articles and believe that cutting out the small purchases is more important than negotiating better prices on the big ones. And that’s a completely valid point. All purchases are important and everyone should learn to practice conscious spending every day.

        Also, after reading my original comment about 20 more times, I think I should have written “the initial conditions can affect the outcome.” I’m kind of a grammar nerd. :)

  13. I don’t think if you try to give it up completely you will succeed. But, I do feel like you can give up a few days worth if you buy it every week. While I wouldn’t expect you to be able to retire early from the savings, the extra money can help you knock down your debt or help to supplement your retirement.

    1. Oh it can definitely help you retire at least a year early MSG. You can crunch the numbers all kinds of crazy ways. A $2 cup per day, every workday per month (say 22 on average) is $44 per month. At 8% ROI over 40 years that’s 147,724.39. Not chump change… and that’s not even using the classic $5 Starbucks cup.

  14. Believe it or not soap is also a little luxury that people will continue to spend extra on in tough times. A good soap and a good cup of coffee are personal things that can change your outlook. It can even be a catalyst for more savings or at least effort to save. I loved this post because it called out all the financial professionals who think just lobbing things off of your routine is enough for long term change. Behavioral changes take time and effort and way more than just the good of a few dollars because you stopped having a coffee.

  15. I’m a gold-card-carryin’ SB consumer. Loves me some Vanille Breve Lattes.

    I think the focus of what Bach is getting to is that many of us don’t realize the little money leaks that add up to a lot. Knowing where your money is going is important and can help you to plan your finances better.

    For me, getting my lattes, or any other drink, means what am I going to do to make sure I can afford it? Ok, so lattes cost X a year. I have to make sure I have the money to cover that while not giving up anything else important to me. It means making decisions and possibly sacrificing something that isn’t as important to me (not that lattes are crucial to my life, just saying as an example).

  16. Great article.

    For sure, everyone has different priorities, but to sacrifice small pleasures in life is just plain stupid – to be blunt :)

    You have to live after all, so it’s really about living modestly and within your means, whatever those means may be.

    Will promote this week in my roundup!

  17. HUGE fan of Starbucks….HUGE. I get the cheapest best drink there – Dopio con pana, it isn’t on the menus its 2 bucks and freaking fantastic.

    Notwithstanding, while I agree with EVERYTHING your post said, I think the book’s point was not actually that latte’s are evil, but rather, little things DO add up. Again, since I agree with you more than the book I prefer to spend time earning more money rather than saving 3 bucks a day.

  18. We could all go as far as living on the streets in order to save every penny possible. But I would rather enjoy today. Get the latte and enjoy life today.

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  20. I think that lattes are in “The Latte Factor” as opposed to the other small vices you mentioned because at the time that David Bach was formulating this example super-expensive coffee was becoming very popular thanks to Starbucks. It was the price inflation and popularity that won its inclusion – as opposed to cigarrettes, which have become very expensive slowly over time (and vary state-by-state), soda, which is relatively cheap, and alcohol, which has always been popular. It was just a way to illustrate to people that a totally overpriced non-necessity was keeping them from saving adequately for retirement.

    My “problem” with The Latte Factor is that I’ve never found a way to apply it to my own life. I read a few of DB’s books right when I was graduating from college so I had not formed daily routines that involved spending, nor was I saddled with a caffeine or other addiction (I can’t stand coffee or soda). For a non-spender like me, it’s more relevant to consider whether the rarely-paid high fixed costs (rent, car) are worth what I’m paying or if I could get by on a less expensive option.

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  26. Everybody has their vices. There’s no point depriving yourself if the budget is balanced. I don’t smoke, but I like fancy coffee, so who is further ahead? (from a cost stand point) Who cares?

  27. I completely agree with you, everyone needs to have their own creature comforts, otherwise why live? I think the point of the analogy however is not really about coffee, it’s about how marginally small savings can grow over time. Coffee is just a stand in for $5 to make the example tangible.

  28. Ah, the Latte Factor; also a fun topic, at least when it comes to those who enjoy their coffee. (Personally, I can’t stand the stuff, but I’m in the minority, it seems.) As others have mentioned, it’s not really about the lattes, per se, (although Bach certainly has abused the heck out of those poor drinks) as it is about paying attention to even the small expenses in your life. It’s sort of a reverse ‘Penny Wise, Pound Foolish’ type of thing, trying to remind you that if you only focus on the big expenses (the new car, the house, the five hundred TV), it’s easy to let the little expenses slip by and add up to more than the big expenses in the typical month.

    All of that said, Tim Horton’s is pretty awesome (even for a non-coffee drinker). From one of your neighbors down south, thanks for sharing it, Canada!

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