The Latte Factor Warning

There is a concept floating around the financial world that goes something like this: if you quit buying lattes every morning at work you will end up far richer in the long run. The industry refers to this as ‘The Latte Factor’, named after the popular book.

While I appreciate the sentiment that you can build wealth by cutting out small daily expenses, I can’t fully buy into this concept. The latte factor concept ignores the reality of how people lose wealth and fails to consider the beverage’s greater life benefits.

Yes, I know that the book isn’t only referring to lattes. But let’s go with it since the latte is a good demonstration of where The Latte Factor concept generally falls short.

Misdirected Focus

While you don’t want to allow small expenses to get out of control, many people would be better off directing their focus elsewhere. When I say ‘small expenses’ I’m not referring to the easily identifiable small spending habits, like record collecting or clothes shopping. Instead I’m saying you should spend less time trying to cut the expenses that allow your life to go from point a to point b. These are the expenses that act as a lubricant in the gears of life – unnoticeable but vital. While these seemingly unidentifiable expenses cost real money, they are low value targets in the battle to build personal wealth. 

In contrast, some expenses are clearly extravagant. Many one time large expenditures can wipe out years of savings from forgone lattes. I’m talking about things like that Louis Vuitton bag, family cottage or leased Audi. If you truly want to build personal wealth, these status items are what you need to avoid. Especially since all can be easily and satisfactorily substituted with other options that are far less expensive.

The amount of time and mental energy it takes to decide on a 1 year old Subaru instead of the brand new Audi is minuscule compared to that required to avoid a latte EVERY SINGLE MORNING.

Worse yet, those who do focus on the lattes gain a false sense of accomplishment and are actually more prone to justifying those large, extravagant purchases. 

Life Utility

Most of you know that we only live once. Taken the wrong way (YOLO!) some people interpret this to mean they can take stupid risks and live like there’s no tomorrow. On the contrary, I believe this means we should seek simple daily pleasures, whether that be time spent with friends, eating a nice meal or drinking a daily latte. Months or years of shitty living can’t be offset by a single big ticket purchase. This is why I think pleasure needs to be had in frequent bite-sized doses. 

Moreover, there are many spillover benefits to the daily latte, including the dose of caffeine and calcium. Many use this ritual as a means to socialize, decompress and think. Sometimes people use it as a way to escape the drudgery of the office for a few minutes, or work in a slightly different environment.

Sometimes I take my kids to the coffee shop and unnecessarily spend $12 on cookies and coffee to read together for an hour. Is that time and money wasted? Or is that a ritual I can forever keep doing with my kids as they get older? I hardly see it as a waste, and is not worth trading for a fancy car or purse (both of which have zero benefit to my relationship with my friends, colleagues or family). 

Before you subscribe to concepts like The Latte Factor, be sure you know what you’re actually cutting. And be sure you are getting a good return for your time and effort by focusing instead on the highest-impact expenses.


Also Read: The Intelligence of Dumb Money

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