Yes, You Can Have Your Latte and Your Money Goals

You don't have to give up lattes to be "good at money." Here's how to balance lattes with personal finance goals.

Since you’re already reading a personal finance blog, I’m going to go ahead and assume you’ve heard of the latte factor.

You might know it as the theory from David Bach, that if you simply cut out a $5 latte from your daily routine, you’ll retire a millionaire. Allegedly.

Even if you haven’t heard the original theory, I bet you’ve had at least one “well-meaning” relative, acquaintance or total stranger be all “You know, if you just saved that money instead!” as you were minding your own business, consuming your life-giving cup of precious, precious caffeine.

The Latte Factor In Brief

On the off chance you’ve never read the latte factor theory in full, here’s a basic overview.

David Bach is all for redirecting mindless spending on routine small purchases – ahem, lattes and such – to your savings account instead. Depending on how much you spend on a regular basis, and what interest rate you choose for your calculations, saving just that small amount of money every so often can add up to real impacts on your money over time.

While this is true, I have a bone to pick with his theory. And no, it’s not just because according to his online calculator, even cutting out a daily latte habit wouldn’t save me enough to retire.

At First, I Was All In

When I was first starting out with my whole ~savings journey~ I tried to frugalize just about everything, and since the latte factor is Such A Big Deal in the world of pop culture personal finance, I was all over it. My beloved lattes were public enemy number one as I looked to find additional savings in my budget.

Now, this led me to some truly, deeply embarrassing moments of faux frugality, like the time I tried to make coffee without buying a french press. And yes, it did significantly cut down on my coffee budget (ahem Starbucks budget.)

But you know what it never, ever did?

Help me hit my goal of stashing away 50% of my income.

Here’s What Ended Up Working

As people on my email list heard a few weeks ago, I crushed my 50% savings rate last month, posting a savings rate of just over 60%.

Sixty percent!

If you had told me that was going to happen a year ago, I would have laughed in your face. I was right in the middle of my first few months trying to hit my goal, and unexpected expenses kept popping up out of nowhere, cramping my savings style.

Now, I’m basically an early retirement blogger with that bonkers savings rate.

And let’s be entirely real with each other: last month was pretty much sponsored by pumpkin spice lattes, because there isn’t enough judgement in the world to make me give them up. (Also, when I say sponsored, I mean in the way that I paid exorbitant prices for them, and they paid me nothing. So … not sponsored at all.)

So if I bought a billion (ok, like… ten) lattes last month, and hit my savings goal anyways, what gives?

What magic did I end up working to make this happen?

Keeping My Big Expenses In Check

First of all, while yes, I’m a luxurious monster when it comes to my latte consumption, I actually am pretty frugal when it comes to The Big Stuff: housing, cars and food. Those three line items can be budget killers pretty easily, and even the One-Minute Budget recommended percentages has them clocking in at a total of 55% of your income.

That’s without any spending on fun, life, debt repayment or savings. So you can see that keeping those percentages down can give you a whole lot of wiggle room to spend on lattes or whatever the hell you want.

Last month – which I will forever refer to as The Month I Saved 60% – here’s how my housing, car and food percentages broke down in relation to my income.

  • Housing – 14.62%
  • Transportation – 3.96%
  • Food – 4.95%

That’s a grand total of 23.53% of my income, which makes it no surprise that I was able to squeeze in a few lattes (and my ridiculous dog budget) and still stash away 60% of my income. My fixed expenses are low af.

…But Also, I Increased My Income

This was the real magic, friends.

Those percentages are representative of fairly fixed costs, like my rent, my ultra-stable spending on food (I’m a creature of habit and eat the same thing, in the same quantities, almost every week) and my car insurance.

So realistically, and mathematically, the only way to lower them is to increase the income they’re being judged against. And that’s what happened.

It was a combination of a few factors.

One, I got a raise a few months ago at my day job, so that’s been a nice addition to my monthly tracking spreadsheets – but before you go ahead and assume I’m some kind of CEO getting bonkers raises, that’s not the main reason my income for this month went haywire.

Nope, that honour goes to my iffy accounting skills.

Namely, I’ve been freelancing for a few months now with a US client, but because it took me forever to get my banking act together, I only got around to depositing my freelance income into my account this past month.

(Cue all of the real accountants being horrified that I didn’t add the income in the month that I earned it.)

So thanks to that bump in my income in September, I posted a truly insane savings rate, and my house down payment fund did a little happy dance about it.

My latte consumption had literally zero to do with it.

What Does This Mean for You?

If you’re not an avid reader of a zillion personal finance blogs (start with these ones!) you might not know that earn more vs. spend less is a heated, heated debate around these internet parts.

Well, it is, and this article makes it seems like I’ve declared my allegiance. Earn more, don’t spend less.


(Isn’t there always a but?)

There’s still a place for spending less.

If you can spend less on the things that matter – the ones that really move the needle, like your car and your house – you’re giving yourself a ton of flexibility. If you want to save all that money? Great, go for gold. If you want to spend it on fun things? That’s legit too.

I’m a living, breathing example of this: my “fun” category of spending exceeds the amount I spend on housing every month. Sure, it includes my bonkers-expensive dog, but that is a metric ton of fun. Lattes are just one delicious, caffeinated part of that.

So the next time someone siddles up to you as you’re sipping a magically-spiced dairy based caffeine beverage, and suggests that the cup in your hands is the reason you’ll never retire? Feel free to scoff at them like the personal finance expert you are and tell them the latte factor is so last year.

I know I will.

You don't have to give up lattes to be good with money. Here's how I achieved my financial goals without giving up fancy coffee.

What do you think, friends – are lattes public enemy number one? Do they have any place in a frugal budget? Or are you on team latte? I’d love to hear what you think! (And if this post has alleviated any latte guilt, I’VE DONE MY JOB.)

Desirae is on a mission to demystify and un-boring financial info for millennials, so that we can all save more money, spend on stuff that matters to us, and still have a latte or two along the way. Money is literally why we can have nice things, and Desirae is committed to helping make sure you know just enough to make the right calls for you. (She’s also committed to her expensive dog, her side hustle, and her retirement fund.)

30 Comments on “Yes, You Can Have Your Latte and Your Money Goals”

  1. Penny @ She Picks Up Pennies

    If the latte effect is actual lattes, then I’m fine with them. Because I’ll maybe have a chai every few weeks. But if the latte effect is me frittering away hundreds of dollars at the mall every month, then I actually think it’s a HUGE problem. Because if you fritter away money in small ways, chances are that there’s something wrong with the big picture focus as well. I think I estimated that I wasted something like $10,000 on trivial purchases in my shopping days in a post somewhere. So, yeah. I actually think it can be a really big deal, especially if you’re in a situation where you can’t make more money at your primary job. (Go, go, side hustle!) Is a $5 drink going to sabotage your financial future? Probably not. But if you don’t realize how much you’re spending on coffee, do you realize how much you’re spending or saving on other things? ::shakes head at closet::

    1. Desirae

      TOTALLY! This is also all in the context of “…and I track everything I spend so I have an accurate idea of how much those lattes actually cost.” I actually just made the decision NOT to buy something mindlessly because I know what else I have to handle this month, and it wasn’t a priority. (It was a dress to “feel professional” but hey, I’m already a professional!)

  2. TJ

    I’ve always had mixed feelings about this sort of advice, because I know how well intentioned it is, but is it really a gamechanger?.

    It’s very similar to the guru advice you commonly read about paying off debt. Pay the lowest balance off first, instead of tackling the highest interest rate debt which is the rational / most financially beneficial decision.

    Nobody’s going to have a massive increase in net worth just because they cut out coffee, but the knowledge of being aware about where your money goes certainly does have an effect. But coffee independently isn’t going to move the table, I guess unless you’re throw back a latte every hour. In my head, I’m wondering what you’d be like on a dozen lattes per day because you seem pretty hyper as it is. 😀

    You don’t need anyone’s permission to buy lattes. If they make you happy and you can afford it, savor those drinks.

    1. Desirae

      Yes! It’s all about what makes you happy. If someone (for some unknown reason) really hated lattes, but bought them anyways? Bonkers. You should stop doing that. But if anyone loves PSLs as much as I do, and buys them a reasonable amount? (And also tracks their spending and knows it fits within their life?) Go for it.

  3. Fervent Finance

    I’m in the boat where lattes are not the enemy. If you buy a $4 latte 20 times a month, that’s only $80 a month. If that $80 is going to make or break you, you need to start looking elsewhere in your income statement. The real issue is most likely your income – what are you proactively doing to increase it? Or it’s the expense side of the equation. It’s that fancy apartment with stainless steal appliances and the doorman, or maybe it’s the $400 car payment with matching insurance premiums.

    It’s all about balance. Lattes are easy to criticize since they are the low hanging fruit. It’s much harder to sell the car or ditch the apartment.

    1. Desirae

      Ooof, totally – the big decisions are also the hardest to change.

      Also, I’m a little bit dying because you nailed it – a few years ago my coffee budget hovered around $80 a month and it seemed like this absurdly big expense, but it’s because I was making an entry-level salary and yeah, probably should not have been spending $80 on coffee every month. Still yes, the underlying problem? My income, not my expenses.

      In retrospect I should have gotten a second job at Starbucks.

  4. Janine

    I definitely have to agree, earning more has always been the way I’ve gone about it. I can’t give up coffee at work, it is impossible.

    1. Desirae

      Right?! I’m lucky these days that my office coffee is amazing, but my weekend coffees are from Starbucks about half the time (I’m still making great use of my french press at home, and I assume I’ll ramp that up in the winter when leaving the house seems like way too much effort just for a measly latte!)

  5. Financial Panther

    As much as I love David Bach, the whole latte factor always seemed so foolish to me. If you really like and value something, then all you have to do is figure out a way to afford it. I’ve had this some discussion with people regarding buying new phones, which I think is the 2016 “Latte factor.”

    When the new iPhone came out, you got a ton of posts about people saying what a wealth destroyer that was and stop wasting your money buying new phones every 2 years. Here’s what I thought. If a new phone costs $800 every two years, that’s only $400 per year, or around $33 per month.

    Can we really not figure out a way to increase our income by $33 per month if we really want to buy a new phone?

    So if you like your coffee, figure out a way to make that couple bucks! With all the sharing economy apps out there, anyone can make extra money pretty easily on their own time.

    1. TJ

      Completely agree. After you start making mindful spending decisions, when you really value something, you figure out how to afford it by either analyzing your expenses and making changes, or earning more income. It’s not rocket science. 😀

    2. Desirae

      I LOVE THIS! So much yes – phones probably are the new latte factor. I think your breakdown is so smart, about how much they really cost, and when you think about it, you’re also replacing your “digital camera” every two years as well. Even as a DSLR-owner, I find myself taking almost all of my photos with my phone, because it’s right there whenever I want it.

  6. Ms. Rustic Walks

    I agree that reducing fixed costs like housing and transportation makes a huge dent in monthly expenses. Lattes? Maybe not so much, unless you’re legitimately spending hundreds of dollars on coffee. People tend to focus on chipping away at small expenses because they’re easy. It’s hard to change where you live or how you get around. Considering a lot of people spend 50% or more of their income on housing, maybe we should shift our focus to reducing those costs first.

    1. Desirae

      Definitely, and it’s such a good point I didn’t hit – the things that make the biggest impact are also (usually) the hardest ones to change, either because you’re locked into a decision or you don’t want to “downgrade” significantly.

  7. Maggie @ Northern Expenditure

    It’s all about JOY. If the latte is just a part of the routine, it’s a bad habit and it must stop. If the latte is a pumpkin spice latte that you clearly look forward to purchasing and consuming, I’m ALL ON BOARD! Also, I think increasing income is an important step, but I also think it shouldn’t be the ONLY step (as you said) – I just hate it when people take it too far and they’re all like “I work a terrible job that I hate so much and it eats at my soul and my life stinks, but I make so much money I’ll be able to retire early!” – I’m all like: “We work jobs that pay us money and give us nice cushy time off and time to be together. We’d rather be free, but our situation is actually pretty good, so we’re just going to go the slower route to retiring early. Sure, we could increase our income SIGNIFICANTLY, but that would change our lifestyle SIGNIFICANTLY and that’s not a trade-off we’re willing to make.”

    1. Desirae

      Maggie, you are so smart and wise, and I couldn’t agree more. I’ve been thinking a lot about how much I like my day job recently, and how it’s a great fit for my lifestyle and allowing me time to pursue other interests, and how much I like the work – I’d be so hard-pressed to make a change, even for a lot more money, because I truly love it. I’m so glad you have both found jobs that fit your life, instead of the other way around!

  8. Our Next Life

    I always assumed that David Bach in the latte factor analogy meant it to be more of an example than anything. Because I’m sure that most people actually have no idea how much they’re spending at Starbucks or other coffee places in a month or a year, so the idea of mindless spending is really the problem. Not lattes. That said, I probably only buy myself one or two a month, and I really savor them. But I’m also totally cheating, because work buys me plenty of them when I’m traveling. 😉

    1. Desirae

      I couldn’t agree more that the mindless part is the real problem, but honestly, if conversations I’ve had with NON-personal-finance-nerds are any indication, the only thing that really translated in all the media coverage of David Bach’s theory is “Lattes=bad.” I’ve just heard way too many comments for people outside of our admittedly amazing bubble to that effect to think that his message got completely through!

  9. fbgcai

    The “latte factor” is really about mindless spending or if you wish routine unthinking spending – Bach’s example is just one that many can relate to.
    The real issue is knowing that many small, repetitious seeming trivial expenses add up and that the sum total have real effects.

    Personally anything marketed or justified as being ONLY so much per day/week/month/year (pick a time period) immediately becomes suspect.
    Further few folks go one step more and calculate the real cost involved before taxes – i.e. $5 spent on your latte is after taxes – the real cost to you is before taxes. So in many cases getting more income to justify an after tax expense gets to be a vicious circle.

    Personally I like the message presented in “Your Money or Your Life” by Joe Dominguez and Vicki Robin (fairly ancient text) about how personal life capital is the “money” used for a given expense – life capital in my interpretation being TIME spent working to get the actual money (after tax 🙂 ) being spent.

    Example: say you make say $25/hour before tax (roughly $50k/yr), and after tax that works out to say $20/hour (20% marginal tax rate) then that latte at $5 “costs” you 15 minutes of your life/time – expressed in this fashion many people would not value that latte as being worth it and others would 🙂 (YMMV).
    If you really wanted to get down and dirty you would also have to factor in the discounted present value of cash flow generated by not spending the $5 – really messy but still a factor.
    It is easier to visualize if you aggregate the small amounts to a yearly amount to show the impact ( $5/day x 5/week x 52 weeks = $1300/yr cash flow)
    or in time terms 15 minutes x 5/week = 1.25 hours/week x 52 weeks = 65 hours/year (more than 1.5 work weeks! ) – hmmm think I’ll pass on the the latte every workday 🙂

    1. Desirae

      I love that you went into the numbers to break it down, especially since you expressed it as a factor of time! And you’re right, when viewed in aggregate it’s definitely not a small number (although if adding up my spending on different categories taught me anything, nothing is a small number ever, lol.) Also, I couldn’t agree more with this:

      “Personally anything marketed or justified as being ONLY so much per day/week/month/year (pick a time period) immediately becomes suspect.”

      That on its own is SUCH A RED FLAG, and should be avoided at all costs! I’m thinking car payments, financing offers, etc. It’s never just out of the goodness of their hearts, and those payments can add up so fast.

  10. Kate

    I think when taken literally, the latte factor is dumb. I mean, if you love PSLs, but you stop yourself from buying them, that to me is a fast track to saving-burnout and bingeing (binging? words?). Saving is extra hard when you’re miserable the whole time. But on the other hand, in my own life, I interpret it loosely – I did stop buying Tim Hortons tea in the morning and it was one of the best habits for me to get into, because one of my problems was spending money on little things and not caring, but not realizing how fast they added up. So in a way, my “tea” factor helped me. But seriously, just try to keep me away from those Starbucks pumpkin scones. It can’t be done.

    1. Desirae

      Oh, for sure! It’s really about what you care about. If my budget was tight and I had to make a call, I’d give up lattes WAYYYY before I’d opt not to have a dog (let’s be real, I’d give up like, 3/4 of my food budget before I’d opt not to have a dog, but whatever.) I’m also in the totally unbelievably privileged position to be able to spend on more than one thing I really like, which is not true for a lot of people, including Past Des Just A Few Years Ago.

      Also, re: your tea example, I used to have a DAILY Starbucks habit on my way to work, and that was the real latte factor. I’d gulp the coffee on the rest of the walk and it was never like, a treat. It was just “what I did” (and also when I was making way less money, so. Maybe not the brightest of money moves.)

  11. Julie @ Millennial Boss

    Keeping the big spending areas in check is the way to go! Unfortunately, I’m losing that battle by living in Silicon Valley but I did sell my car so that’s a win! Also, I can do without my pumpkin spice lattes but you can never take away from pumpkin beers. Something about a good Shipyard Pumpkinhead with a cinnamon sugar rim gets me going!

    1. Desirae

      Ok, so now I need to find a cinnamon sugar ringed pumpkin beer before pumpkin beer season is over, because WHAT THE WHAT I DID NOT KNOW THAT WAS A THING. Next fall, I’m coming to Silicon Valley just to try one of these (ahahaha jokes I’m going to buy a house and be poor forever.) But seriously: I’m going to hunt one down around here, and thank you for letting me know this was an option!

      And sorry about the rent prices 🙁 But yay no car!

  12. Matt Spillar

    For me it all comes down to mindset. The more mindless small purchases you have, the more money you waste. I think that’s what the Latte Factor was intended to prove. It shows that small amounts add up and can make a difference. It’s all in the mindset. If you savor a latte every now and then, go for it, but if it’s part of a mindless routine that you don’t even pay attention to, that’s an issue. Most of us track our expenses, try to align our spending with our values, and have optimized most of our expenses. These qualities aren’t the norm, so the Latte Factor shows where small amounts of money are leaking and it’s an easy first step for people to apply to try and be more conscious about where their money is going. The problem is the spending mindset, not the lattes. This type of advice can be helpful for people really struggling with money who aren’t aware of where their money is going. These type of people think they have no money left at the end of the month to put into savings, yet they’re blowing hundreds at restaurants, coffee shops, and bars.

    Bottom line for me is that the Latte Factor has it’s place, it shows how doable it can be to make small improvements in your financial life, but for people who have already gotten their finances straightened out it’s not all that helpful and becomes a guilt trip for small indulgences.

    1. Desirae

      It’s so true Matt – this all really only applies, and I only have the data to back it up, because I’m being mindful of my spending and tracking where my money goes. That baseline needs to be in place before any of the real magic – aka guilt-free lattes – can happen!

  13. Mustard Seed Money

    I’m a big fan of spending money on things that you value. If you value lattes spend money on your lattes but only if you can afford it. Now if you’re going into debt to afford your latte habit, then maybe you need to pull back. But if you can afford it and you’re hitting your financial goals. Enjoy away!!!

    1. Desirae

      Exactly! If this was a mindless thing I didn’t fully enjoy, I’d cut it out for sure, just like the many things I actually have cut out that other people love, like fancy haircuts (I cut my own hair) and shopping for clothes (I wear the same thing every day.) Other people could easily take the stance that omg, you don’t need to cut your own hair, you’re being WAY too frugal, but I actually kinda like it and take pride in being able to do a decent job of it myself! I just don’t care to spend money on it, so I don’t.

  14. Nick Ross

    Great read! I always like to look at spending as an opportunity cost. What value is this giving me compared to something else I could be spending the money on? For me, lattes provide great energy and allow me to perform at my best. I am able to work smarter and faster because of them and to me that means a great deal more than the cost of the latte itself!

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