The “Latte Factor” is Not About the Latte

The Latte FactorI‘ve been reading a lot of criticisms of the Latte Factor recently. If you’re not familiar, the Latte Factor was popularized by author David Bach. The idea is simple. If instead of getting a $4 latte every day, you instead invested the money, you’d have a pile of cash in 10, 20, 30 or 40 years.

Lately the Latter Factor has come under a lot of criticism. Some argue that we shouldn’t deprive ourselves of the small pleasures in life. We are on this earth for a relatively short time, and if you enjoy a daily latte, we shouldn’t sacrifice that enjoyment for a retirement several decades away.

You’ll find plenty of folks with different views on this subject–





It’s Not the Latte

The Latte Factor is not about the latte. On the surface, it’s about the countless small expenses that we give little thought to each month. We spend money out of habit, for convenience, or for emotional reasons. Regardless, the Latte Factor is there to remind us that the small expenses matter.

Saving small amounts of money over a long period of time can have a huge impact on your finances. As a rough calculation, multiple your “latte” weekly expense by 752. The result is how much you would have if you instead invested this money for 10 years. (I first heard about the Rule of 752 in my interview of Mr. Money Mustache.)

Go beneath the surface, however, and you’ll find that the Latte Factor is about a lot more than just math. The real key with the Latte Factor is this–most of the daily small ways we spend money do not add to our enjoyment of life. We’ve convinced ourselves that they do. But in reality, they add very little. Sometimes we spend money out of habit. You go to Starbucks because that’s what you do in the morning. What if one day you didn’t? What if you skipped Starbucks for a month? Would you really miss it? Have you ever tried?

The Latte Factor is not about sacrificing the enjoyment of a daily latte. It’s about understanding what we truly value. If we focus on spending money in ways that enhance our lives, we’ll have plenty of money to enjoy our true “lattes,” whatever they are. I found this to be true after I gave up cable and a country club membership (some “lattes” are more expensive than others).

Let’s Roll

Your “latte” may be something totally different than what it is for me and for my family. But I’ve found that when we really think about the way we’re spending small amounts of money, we find that we spend money in ways that don’t really add meaningfully to our lives. Often we spend out of habit or convenience.

If you can think intentionally about how you’re spending money, you’ll find ways to cut back that do not affect your life in any meaningful way and that over the long term can have a big impact on your finances. To me that’s really what’s at the heart of the Latte Factor.

Finally, to see just how much the Latte Factor can increase your wealth, check out our Latte Factor calculator.

Topics: Budget

7 Responses to “The “Latte Factor” is Not About the Latte”

  1. Rock on, man… Oddly enough I’ve never thought of it in this way but you’re definitely right. It’s more about the little things in general than it is the Starbucks… Perhaps I’ll go back to keeping that and nixing my lottery tickets 😉

    (that was a joke. kinda…)

  2. I think you’re right here. I love my lattes, I frequent Starbucks often – but I’m very careful to find ways of cutting back on things I don’t enjoy or don’t need. The Latte Factor is symbolic of those small, regular wastages, and for that I think the Latte Factor is a sound wealth tool, whether or not it’s the lattes that are given the chop!

  3. I think the “latte factor” is a good reminder that our spending is greatly affected by what we might consider to be innocuous daily expenditures. The problem is, they add up…fast!

    Now that I track my spending by category every month–I don’t have a budget, I just track actuals–these small expenses stick out like a sore thumb.

    Awareness is key. It enables you to make thoughtful choices about spending, that way you can decide to spend on what matters most to you. And, if it’s that latte you want, then enjoy!

  4. Love it! That’s what money should be used for: maximizing happiness, enjoyment, or whatever your true priorities are in life. Use it optimally, and if that means spending on a daily latte, no judgment as long as it is a deliberate choice versus all the other spending possibilities 🙂

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