Personal Finance Posts

Why We Hate “The Latte Factor”

I’m sure that you have heard it before: if you stop buying a cup of coffee every day and invest the money instead, you will have a million dollars in ten years or something ridiculous like that. Coffee all of a sudden is the reason why you won’t have enough money for retirement or why you can’t afford to buy a house. This is known as The Latte Factor, and we hate it.

The Latte Factor was a term coined by entrepreneur and author David Bach. The general concept is that you need to look at your spending habits on the little things like a cup of coffee and redirect your spending into savings. Big companies like Vanguard have tried to convince you that a cup of coffee a day means $106,000 later in life.

If you plan correctly, there is absolutely no way that our latte from Starbucks is going to cause me to work until I am 90. Maybe putting away an extra $30 a month that I spend on my Starbucks will help in the long run, but at what cost (my sanity, and my Starbucks Gold membership so it’s not worth it). Also, we now know that people who drink three cups of coffee a day may live longer than non-coffee drinkers, a landmark study has found.

The Latte Factor and why we hate it

I understand the concept of putting a tiny bit away, but I think it is way more important to enjoy the little things and have a definitive plan to your saving strategy. For example:

  • Save and invest 10% of your salary every year. So if you are making 100,000 a year, you should be saving $10,000 a year. Put that savings on automatic and invest $833 a month with Stockpile.
  • Budget for the little things that you love. If you can’t live without your Starbucks, your USweekly subscription, or that monthly SoulCycle membership, then don’t live without it. Just factor it into your budget and make sure you do not go overboard.
  • Use an app to help. There are so many awesome apps on the market these days that can help with budgeting and investing. Mint, You Need a Budget, Hello Digit, and Stockpile are just a few. Do your research and get automated.
  • Make sure you invest, not just save. Take advantage of that compounding interest over a long time horizon and you can drink all the damn coffee you want.

So the next time someone tells you to skip your delicious mocha because it will help you retire ten years earlier, order it and sip it in their face ?.

Stockpile, stocks by the dollar

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