I’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 20, 30, or 40 years.

You’ll find a lot of different opinions on the Latte Factor. Some people argue that money can and should help us enjoy the little things in life. Others argue that the Latte Factor is an important consideration when budgeting and planning our savings.

Since everyone has their own opinions on the Latte Factor, I thought I’d offer my own take. And that is basically this: the Latte Factor isn’t actually about the latte.

It’s Not About the Latte

Sure, the Latte Factor seems to come down particularly hard on many people’s favorite vice–expensive coffee on a regular basis. It’s similar to the more recently publicized Avocado Toast Problem, which is ostensibly a millennial-themed take on the traditional Latte Factor.

But neither of these issues (whether or not they are actually true problems) is about the actual coffee or food spending. They are more about the numerous small expenses we give little thought to each month. We get into the habit of stopping by our favorite coffee shop for a $4 coffee each work morning. Or we spend $10 each weekday on dining out for lunch.

These expenses don’t seem like much on the surface. But dig into their actual impact on our budgets, and you’ll find that it’s actually quite large.

For instance, that $10-per-weekday lunch adds up to $50 a week, or $200 per month! And your $4 latte on the way to work adds another $20 per week, or $80 per month. Over the course of a year, if you’re a latte-and-lunch-buyer, that’s $3,640 you’ve spent–probably with very little consideration.

So the bottom line here isn’t just about never enjoying an expensive, well-made latte again. Or even never dining out for lunch on workdays. What it’s really about is the necessity of seeing these small, frequent expenses and understanding how they affect our overall financial goals.

And then once we pay attention to these small expenses, we can put them into the framework of our overall financial life. Unexamined, these expenses are just part of our tendency to needlessly fritter away our earnings. But when we truly examine expenses like these, we can take the time to align our spending with our values, and that’s a valuable goal.

6 Steps to Dealing with Your Latte Factor

Maybe you actually hate lattes. Or maybe you prefer making your own fancy pour-over coffee and smashed avocado toast at home each morning. But even if it’s not lattes and avocados, you probably have a Latte Factor of your own. Here’s how you can pinpoint, examine, and deal with this potential money-suck.

1. Track your budget for a month

You might know just from reading the first part of this article exactly what your Latte Factor is going to be. Maybe it’s stopping by the sale rack at Target every Saturday, splurging on pricey drinks with dinner every weekend, or buying snacks every time you go to the gas station.

But maybe you don’t know your Latte Factor right away. In this case, track your spending–down to the last penny–for one entire month. Don’t worry about prescribing your spending. Just keep an eye on it. The goal is to find patterns in your spending that you may not even be aware are there.

2. Highlight any small expenditures you make regularly

At the end of the month, print off your expenses for that month–or pull them into a budget-tracking program. Then, highlight the relatively small expenses that pop up multiple times during the month. Unless these expenses are truly necessary, you’ve probably found your own personal Latte Factor.

Again, this could be just about anything. Maybe it’s even something as simple as paying an extra $5 for parking because you don’t want to walk the last couple of blocks to work. Or it could be related to multiple small purchases for your kids or yourself. Or maybe you’re always hitting up the Walgreens sales on makeup and personal goods until you have a drawer full of options and a lot of money out the door.

Whatever it is, total up how much you regularly spend on that particular habit or item. Then take that information with you to step three.

3. Take a reality check

Now that you know how much you’re spending on your personal Latte Factor, it’s time for a reality check. Multiple that spending out by the whole year, assuming that what you spent in the last month is about what you’ll spend every month. Then use a calculator like the one below to determine what you’d get if you invested that money for the next ten years.

For instance, let’s say you’re spending about $45 per month on makeup that you don’t really need. That’s $540 per year. If you instead invested that money each month at an interest rate of 8%, you’d have $8,232 in a decade. It’s not near enough to retire on, sure, but it’s not exactly chump change, either!

4. Decide if these expenses align with your values

Now you have an idea of what the real cost of your continual habit is for your savings. But does that mean you should automatically decide never to indulge in your Latte Factor again? No. It just means you need to be more mindful about your small indulgences.

The first step to that is to decide if the spending aligns with your actual values. If you truly value simplicity, for instance, you probably don’t actually want a drawer full of random makeup. You just got into the habit of buying more and never thought to stop.

But if you value the time you spend with your friends or spouse over a meal out or the way your favorite barista makes your favorite latte, you don’t have to cut this spending out entirely. If the expense truly does align with your overall values, take step five to figure out how to keep it within reasonable limits.

5. Figure out where to cut back

Say you just really love that latte. You don’t have to cut it out entirely. But if you’ve had a rude awakening from how much money you could save if you stopped buying lattes, find small ways to start cutting back.

For instance, maybe you make coffee at home four days a week, and save your lattes as a Friday treat. Or if dining out is your problem, maybe you pack your lunch four days but schedule a meal out with a coworker one day a week.

Even if you decide not to cut back on the expense at all, you are at least aware of it now. And that’s often half the battle. If you decide that this expense is worth it, then roll on with your choices. Just keep in mind that if you’re struggling to pay off debt or save more money, this is one area where you could probably cut back relatively quickly.

6. Have a plan for the money saved

If you do decide to cut back on your personal Latte Factor, decide ahead of time what to do with the money you’re saving. Earmark that savings for something bigger, or transfer it automatically into your retirement account.

If you don’t have a plan for what you’ve saved, you’ll probably just spend the money on some other convenience or habit you haven’t recognized yet. But if you plan to do something important and meaningful with the money, you can sustain your new savings habit much more easily.

At the end, personal finance is simply that: personal. What you find worth spending money on, I may think is completely crazy. But as long as you’re being responsible and thoughtful with your spending and saving, you’re doing what works best for you.


  • Rob Berger

    Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.