When Ditching the Latte Money Advice Makes More Financial Sense

The Latte factor is the advice of skipping your daily cup of latte, so that you can use the money to invest. In what scenarios will this advice be not useful?

Financial author David Bach is famous for teaching a concept called “The Latte Factor”. The Latte factor is the advice of skipping your daily cup of latte, so that you can use the money that you’d otherwise spend to save or invest. In other words, stop spending money in an expensive coffee place. If you need to have coffee, make it at home because it is cheaper.

For example, you get a $4 latte every weekday. This works out to be $20 a week, $80 a month and almost $1,000 a year. Putting this amount towards your credit card debt or retirement savings would add up over time. Not forgetting, if you a coffee drinker, you could also be having more than one cup every day. Just imagine the savings that you can make from giving up your Starbucks latte habit!

Many financial experts offer the same advice. Suze Orman, best-selling author of “Women and Money” doesn’t consider coffee as a necessity. Instead, she suggests that we could be investing those dollars and letting them earn interest. Her resounding message: our daily coffee habit could be costing us!

“You are peeing $1 million down the drain as you are drinking that coffee.” Suze Orman

Let’s round up to a spending of around $100 on coffee each month. If you are to put that $100 into an investment account each month instead of spending it on coffee, the money would grow to around $1 million with a 12% rate of return after 40 years. Even with a 7% rate of return, you’d still have around $250,000. It’s quite a pretty sum! A 7% rate of return can be fairly assumed, since the stock market has generated an average of 10% rate of return per annum over the past decade.

Personal Take on the Latte Money Advice

I generally do subscribe to the Latte Money Advice (or even the avocado toast advice).

Compounding my money with regular allocations for investment obviously makes sense from a personal financial point of view. While there are no guarantees that past returns will predict future gains, I believe there are enough positive reasons to invest my funds. Finally, after losing tons in penny stocks, I’ve learnt to be a lot more savvy and selective in my investments.

As a guideline, I generally do not believe in spending on unnecessary items (well, at least based on my perception of needs versus wants) that would chalk up to huge amounts over time. Back when I was in the banking field, I would have cups of latte over lunch or tea meetings. Not anymore. Since I now work from home (where I run my coaching and healing business), I don’t find it necessary to have lattes at Starbucks every day.

Thus, based on the financial computations, I would recommend paying heed to the Latte Money advice. Whether you run your own business or you are an employee, consider setting aside funds for investments. If you adopt the advice early on in life, congratulations! If you’ve only just learnt it, it’s better late than never.

However, I’d like to concede that the same latte advice may not be applicable for every situation.

When Ditching the Latte Money Advice Makes More Financial Sense

You may be one of those who love the smell of coffee.

The creamy taste of latte gives you the perk that you need.

Enjoyment aside, would there be situations where ditching the latte money advice makes more financial sense?

For a start, I can think of 3 scenarios for consideration…

1. What if having a cup of latte at the cafe allows you time to collect your thoughts on strategising for your work or the business idea and you find that it works better because you are away from your office?

2. What if going to Starbucks (or another coffee joint) is the best place where you can get work done when you don’t have other alternatives?

3. Or if you are using an outside cafe as the place where you conduct business meetings? In which case, you can charge the expense to your company.

Hence, giving up cups of latte may not be great in these examples. You may actually benefit from your coffee experience at the cafe. It could be that you are able to gain clarity, improve your offers and come up with a business plan that put you on track to $1million or more.

There were times when I had to meet clients face to face. Since I didn’t want people whom I don’t know very well coming over to my home, meeting in a conducive environment like Starbucks has been a preferred option. In my case, spending on latte is small change since it works out cheaper than having to rent an office space for a meet-up.

What about for you? What’s your situation like? You could be in a situation where you need to look more closely at the numbers.

When Giving Up Lattes is Not the Answer to Making $1Million

Then again, what will be helpful to acknowledge is that giving up lattes does not necessarily make us rich.

We can don’t drink latte and still be poor.

It’s possible that we set aside the $4 savings from latte but spend it on some other unnecessary expense, or not save the money. The problem is that the brain is wired to favour short term pleasure over long term ones. Which brings us back to square one, in the scenario of spending the money unwisely on something else.

What drives our spending habit are our subconscious beliefs. Here is where it will help for you to place some attention on. Beliefs like “I need to have what I want now in order to feel deserving” can drive you to make unnecessary purchases. These beliefs make your money mindset, and ultimately drive your behaviour.

I wouldn’t be making better financial choices today, without having addressed my limiting money blocks. Hence, I recommend looking into what your fears and beliefs may be especially when you are not able to create healthy money habits or undertake actions that will bring about financial wellness. Knowing what limiting beliefs you hold and then, releasing them is key. It’s how you can create a breakthrough.

Applying the Latte Money Advice with Balance

All in, the latte money advice is great in that it makes you take a step back and reflect on how you can accumulate savings to pay down your debt or create wealth. Small amounts do matter and they build over time. The Latte Factor helps you to think about compounding returns on your money.

However, the same advice may not be applicable in situations where having the latte may just help you with a net positive financial/work balance. Remember: it’s not about the latte ultimately. What makes financial sense is to find ways where you can make more than what you spend, and to create an investment plan for your savings.

The idea of having to cut back may do more harm than good. Stop shaming yourself if you can’t take up the advice of giving up your latte! Very importantly, look into clearing any limiting beliefs, so that you can build a healthy money mindset. Cultivating positive habits becomes a lot easier when this happens. What you want is to be able to create financial wellness in a way that is both conscious and that supports your unique life circumstance.

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I’m a coach who loves to write on money mindset, subconscious fears, self-love and living the solopreneur life from real-life experiences. For more articles, follow me on Medium.