Why I Stopped Penny-pinching and Can Enjoy My Damn Coffee

Taking control of my finances helped keep my financial anxiety in check

We live in a strange time in human history. With all of the complex challenges we face and opportunities before us in the world, we spend an inordinate amount of time worrying about petty issues like how much people spend on coffee.

In this article, I’ll review my experience with the “latte factor,” why I used to think it was a big deal and why I moved past it. I’ll also review how I ensure I reach all of my financial goals without stressing every time I go to a coffee shop, which I assure you is a much more enjoyable way to live.

What is the Latte Factor?

The “latte factor” is a term first coined by David Bach in his book The Automatic Millionaire.

The idea behind the latte factor is that seemingly small and routine purchases like buying a latte or some other expensive coffee can add up to large sums over time.

Bach argues that by cutting out these small purchases and automating the savings towards saving and investing, you can generate much more wealth over your lifetime.

Suze Orman is another well-known personality in the personal finance space who once claimed that Millennials are “pissing $1 million down the drain” by going to coffee shops rather than brewing every cup at home.

If you are interested, I have reviewed the dubious math Orman uses to make that claim right here.

I used to subscribe wholeheartedly to the latte factor.

The central argument behind the latte factor is that small purchases have an opportunity cost. When I first heard about the latte factor, I was finishing my master's degree in economics, so the concept was extremely appealing to me for two reasons.

1. I was an economic student, so I had a positive bias towards anyone using the term “opportunity cost” in their argument.

2. I was broke and in debt.

In personal finance, we use clichés like “every penny counts” too often. During graduate school, though, every penny did count for me.

I was working 2–3 jobs during the time, but between tuition, housing, and sending money back home to help family, I barely had enough time to get by.

When I got hired for my first “career job” out of grad-school, I had a few hundred bucks in my account and would not have been able to make rent if my job search went on any longer.

During that time, the latte factor made a huge difference. By cutting all of my expenses to the bone and throwing every penny, I had against the student loans, I was able to take control of my finances within a few years of graduation.

As my circumstances changed, my views have evolved

When I met the woman, who is now my wife, I began to slowly shed my habits of extreme frugality. She was responsible with money but did not share my warped view that money was to be hoarded.

I began spending money at restaurants, traveling, and even the dreaded coffee shop for overpriced coffee. At first, I felt sharp pains of anxiety every time I spent money. The psychological scars of feeling like I would never have enough money were still fresh.

As time passed and my financial position continued to improve, those psychological scars began to heal. As my income continued to increase, I began focusing less on pinching every penny and more on increasing my income and acquiring assets.

Today, an indulgence like going to a coffee shop does not bother me. That’s not to say I am hitting Starbucks every single day, but I do enjoy spending a Saturday afternoon writing at a coffee shop.

I’m still on track to become an “Automatic Millionaire”

In his book, the Automatic Millionaire, Back recommends cutting out all expenses like lattes and automating the savings into an investment account. He refers to this process as the path to becoming an “automatic millionaire.” Meaning you can save $1 million through setting up an automated savings plan.

While I am not so concerned about the “latte factor,” I am a huge proponent of automatic your financial goals.

I figure out how much money I need to save to achieve my goals, set up an automated savings plan, and spend whatever is leftover.

For example, If I crunched the numbers and figured out I needed to save $1,000 per month to reach my financial goals; I would call my bank, set up an automated process for $1,000 to come out of my checking account on the same day every month to be used towards saving and investing and then spend whatever is leftover.

This means I can enjoy my latte without freaking out about “the opportunity cost.”

It’s a much less stressful way to go through life, and I am a happier person for it.

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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.