The Latte Factor is Crap: In Defense of Little Luxuries

You can’t write about personal finance without addressing the so-called “latte factor.” A personal finance writer named David Bach coined the term “the latte factor” for the idea that you could build up wealth by redirecting your small expenditures into savings. Quit your lattes and you can retire! It sounds nice and fits well on a bumper sticker. But the latte factor is crap – here’s a defense of little luxuries. 

You Can’t Fund Your Retirement by Cutting Lattes

Even though I don’t drink much coffee, I’ve thought a lot about the latte factor. I’m of two minds on this. On my first mind, the cost/benefit ratio of quitting a daily coffee habit seems low. Say you cut out a $2 coffee every workday and make coffee for $0.50 at home, invest all that money from the very first day, AND there isn’t a market downturn, you can have $52,000 after 40 years. That’s enough for one year of retirement! If you choose a more expensive latte, you can save $111,000 or two years of retirement. 

And true, one or two years of retirement is better than zero years. BUT you had to make the right choice 20,880 times (2 decisions (1. not to buy coffee, and 2. to make your coffee) *261 workdays*40 years, assuming that you are only tempted to get coffee once per workday) plus all those decisions like learning to make coffee and always having coffee, milk, and sugar on hand. You get TWO years of retirement savings after making 20,880+ perfect decisions.

The Latte Nonfactor

The latte factor doesn’t work for everyone. For instance, it doesn’t work if you don’t invest your money (45% of Americans do not own any stocks). It doesn’t  work if you’re one of those people who just spends all their money. If you cut out lattes, then you’ll just spend the money somewhere else. The problem is your mindset about money, not what you spend it on. 

I don’t think of this as the “latte factor,” because overall, I think attacking a part of your budget that requires so much attention and that will yield such small results, if any, seems pointless. It’s more like a “latte nonfactor.”

Cutting Out Lattes Can Backfire

Cutting out lattes every day is like saying, here’s a life hack, “just run 5 miles every day for 40 years straight.”

I like to think I have a fair amount of willpower, but doing something a little difficult every day seems to be a recipe for disaster. I would rather make fewer decisions. Decision fatigue is real. The more decisions you make, the lower your willpower to make future good decisions.

So even if you make the “good” decision to forgo coffee, maybe you get tired later when someone asks you to go out to lunch, or to happy hour or to go shopping. Maybe you get too tired when it’s time to contribute to retirement. You can’t just expect this one decision not to have any effects on all your other decisions. 

Lattes Can Save You Money 

I know you might be saying, if you just buy a coffee maker or an espresso machine, you’ll get used to making your coffee in no time. It won’t feel like a decision. Well that’s assuming you drink coffee in the morning. I’m typically awake in the morning and exhausted in the afternoon. One of my favorite ways to get a break in the afternoon is to walk and get coffee with a colleague. It definitely is a great way to get to know people. Cheap networking! 

Plus latte dates can save you tons of money. Getting out of the house to work at a coffee shop is cheaper than paying for office space. Meeting for coffee with friends or dates saves you the expense (in time and money) of longer and more expensive options of dinner. It also saves you the bad decisions of alcohol. But more importantly, coffee dates are short dates. You’re also more likely to get to ‘yes’ if someone knows that it’s a short amount of time. Take the mentor out for coffee – they need a little pick-me-up and they aren’t signing up for hours of time away.

Lattes Can Increase Your Income

Plus the coffee in offices tends to be terrible. Sometimes a good cup of coffee, some conversation with a coworker, the fresh air, sunlight and activity of walking outside – all contribute to a better, more focused mind and a little better health too. If you do better at your job and your health, that’s worth a few bucks a day. 

Yes we can bring a to-go cup of coffee with us for the afternoon and ask our coworkers out for a walk in the brisk fresh air. But let’s face it – that’s weird. Asking someone to get coffee makes it seem like we are all normal people. Only after our coworkers have fallen for the act that we’re normies, THEN we can spring our frugal habit on them. But first, we buy them coffee.

How to Afford Your Lattes

It’s easier to make fewer decisions, and make them the automatic higher-savings ones. Instead of making all these little decisions to save $40/month, think of other ways that you can save that money automatically.

Drive a cheaper car. Go out to eat fewer times. These acts also involve decisions but you’re saving far more money per decision. For the amount of mental energy saying no to coffee can take, it makes sense to focus on that only after you’ve gotten your other ducks in a row.

Or if you determine how much you spend on lattes, make a deal with yourself that you will earn whatever you spend on lattes by side hustling. If it means that much to you, then this is a great compromise. Plus this is motivation to learn skills through a side hustle. 

Still, You Can’t Splurge All the Time

Remember I said I was of two minds on this? Well, the other mind I have is that no one deserves luxury. Let’s face it – the latte-a-day habit is new and unnecessary. I remember, in the 2000s, they had all these news stories about the outrageous prices people were paying for coffee. Now, the high prices and the habits have become commonplace. It would never have been a problem to cut lattes even in the high-spending 1980s because it wasn’t even an option. (It was probably called “the cocaine factor” back then.)

With prices for coffee exceeding $5, that’s too much for an all-the-time expense. It’s not enough to fund your retirement but the expense surely adds up. And if you have high credit card or student loan debt, then the numbers work out even more in your favor not to spend on coffee. It doesn’t make sense for people working low-income jobs to spend this much money every day on flavored water. 

No one needs coffee, and certainly no one needs it in a disposable to-go cup everyday. So if you’re already scrimping and saving on the big things – housing, education, food, transportation, etc., and you are still struggling with money, then cut the coffee. If buying coffee is a large luxury, I’m here to tell you, no one deserves luxury. I’m defending little luxuries, not big ones. You have to put in the work to get coffee to become a little luxury.

Your Coffee is Not Your Identity

I’ve heard some people defend their coffee habit because getting their coffeeshop cup is the best part of their day. To that I have to think, you need to rethink your life.

We do not live to consume.

How sad to spend 40 years of your life and the best part of your life is buying coffee. It’s nothing to pat yourself on the back for. Maybe the money could be saved to create a better life, an escape hatch, even just to learn something new that can be your reason to get up in the morning. 

We live to create.

That creative spirit should be the reason we get up in the morning. The life we create should be the reason. Not a cup of coffee that someone else makes and we shell out our hard-earned money for.

In Defense of Little Luxuries

Look, all of our lives have been upended. We can’t travel, go to parties or weddings or celebrations, and we can’t dine out the way we used to. But many of us can still go meet friends for coffee outside. If that’s the bit of normalcy you crave during this pandemic, AND you can afford it, then go ahead and take it. Many people consider this a lost year, but I think you have to take whatever moments you have. You can’t just let the year slip away.

I don’t drink coffee regularly – at home or out. I can usually fall asleep immediately after drinking a cup of coffee. But when I’m REALLY tired, a cup of coffee can help. And the other times I drink coffee, it’s just for fun.

I remember having a cappuccino with my family and a friend in a cute cafe in London because our trips there managed to coincide. We had gone to see a play on the West End with Kenneth Branaugh and Judi Dench but our seats were standing room only so we sat behind the balcony and just chatted quietly. I remember drinking coffee with boyfriends on lazy Sunday mornings reading the paper. My old coworker and I would try out a new coffee place every week (they just kept popping up) and how he once told me he had a tattoo in Arabic on his back (he was totally lying but I’m gullible). 

I think about these memories when I have a coffee. To me, coffee has a lot of wonderful associations with it. And I don’t mind the couple dollars spent here or there. It wasn’t the coffee per se that was the memory, but the coffee facilitated it. These are the little luxuries that make up life. 

Supporting Your Community …Through Coffee

During the pandemic, businesses are suffering. I think many of us are a little afraid that all our favorite neighborhood spots will soon be overtaken by McDonalds’ and Starbucks and Amazon. Buying coffee at our local shops is a great way to support them and make sure they survive. Some may even consider it their version of charity. 

Using money is not a sin – it’s not something that needs to be avoided at all costs. The important part of spending money is that you make conscious choices in line with your values. And if spending on coffee to support your neighborhood spots is in line with your values, I don’t think anyone should stand in the way of that. 

Conclusion: The Latte Factor is Crap

If you have all your money goals in order and you enjoy having the occasional fancy coffee, go ahead!  I like having a coffee a week. But I’ve scrimped and saved for 10 years. I feel like I’ve deserved one coffee a week with a coworker as a little break from work. And it’s not going to detract from my larger goals. There’s more to life than scrimping and saving. Money is meant to be used.

I focus on the “latte spectrum” which I define as the mantra of: Don’t spend on luxuries, even little ones, until you can afford them. But when you can afford the little luxuries, don’t sweat it too much.  

When you can enjoy your little luxuries without worrying about the cost, they’ll become even more luxurious, and you’ll appreciate them more because you will remember a time when you couldn’t have them.

What do you think of the latte factor? Is it worth it to you?