Financial author David Bach introduced the Latte Factor as a metaphor for all the small indulgences we regularly treat ourselves to that add up over time. It wasn’t meant to single-out Starbucks as the main culprit for our financial woes, but somehow millennials feel the need to stand up for their beloved coffeehouse and defend their right to buy an obnoxious drink whenever they damn well please.

Helaine Olen (not a millennial) made people feel good about buying lattes again when, in her best selling book, Pound Foolish, she explained how the Latte Factor is a lie and buying coffee every day is not why you’re in debt. No, instead it’s the big things: housing, transportation, health care (in the U.S.) that are more difficult to cut back on.

Related: The worst financial advice ever given to millennials

More recently, this author whined about how millennials were being judged on their spending choices, criticizing a survey that revealed millennials spend more on coffee than on saving for retirement:

“Millennials are continually being accused of wasting money on supposedly frivolous things. In October, an Australian man named Bernard Salt wrote that he had had enough of seeing young people ordering “smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more. Twenty-two dollars several times a week could go towards a deposit on a house,” wrote Salt. 

According to my calculation, if millennials were to abstain from their avocado toast three times a week, they’d save around $3,432 per year. Which isn’t all that much, in reality.”

Oh really? And in what reality is $3,432 not that much money? According to the author, life is unfair and millennials should just give up on the idea of owning a home, or saving for retirement, so just let them have their damn latte and $22 toast.

Millennials Don't Get The Latte Factor

My take on the Latte Factor

“Take care of the pence, and the pounds will take care of themselves.”

The Latte Factor is not about Starbucks. It’s not about denying you the odd frivolous treat if you enjoy it. It’s about mindless, habitual spending that squanders your discretionary income and hurts your ability to save for those bigger goals.

But, at the risk of offending an entire generation, here’s what’s really going on: If you’re buying coffee every day, or ordering $22 toast several times a week, maybe you’re just lazy. You’re lazy, and you don’t know how to cook. You’re too lazy to brew your own coffee at home and cook for yourself.

(It’s not just you. I did it, too.)

How hard is it to make a cup of coffee? Oh, you don’t have time in the morning? Get a programmable coffeemaker, make it before you go to bed and set the timer so it’s ready when you wake up. Or maybe, I don’t know, wake up earlier.

There’s a Starbucks and a Tim Horton’s on the University campus where I work and every morning there are dozens and dozens of students, faculty, and staff lined up to get their coffee fix. That is mindless habitual spending. It’s different than enjoying a Grande, Iced, Sugar-Free, Vanilla Latte With Soy Milk once a week at Starbucks.

Buying lunch every single day. That’s mindless habitual spending. That’s the Latte Factor. It’s different than enjoying an expensive charcuterie board with your partner once in a while.

Final thoughts

Yes, we need to get the big decisions right. But those aren’t daily decisions. Don’t buy too much house. Shop around for the best mortgage rate. Spend a reasonable amount on a car and resist the urge to upgrade every 2-3 years. Invest in a low-cost, broadly diversified portfolio and don’t trade too often.

Related: Advice to millennials on starting your investing journey

By the way, these things aren’t mutually exclusive. You can make smart choices on the big things in life while also keeping an eye on your daily spending.

The Latte Factor is about how your daily habits shape your financial future. It’s not an attack on your irregular indulgences. So go out and enjoy your fancy drink. Just don’t lose sight of the fact that small mindless purchases can turn into big money leaks over time.

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19 Comments

  1. Susan Hall on January 20, 2017 at 5:06 am

    Great article and “the Latte Factor” principle is what started me on the road to financial freedom 20 years ago. I am living the dream now and loving it and I still rarely indulge in lattes!

  2. Jon King on January 20, 2017 at 6:05 am

    Well said… I’ve since moved onto reading and following other material, but I greatly appreciate the everyday examples, simple math, and visuals that Gail Vaz-Oxlade has used to emphasize the benefits of saving on the small things.

    P.S. I really dislike labels such as “millenial” and “baby boomer”. They’re so often used as a way to camouflage incorrect or oversimplified, ageist perspectives with pop-culture slang or academic-sounding language. Every generation contains a mix of different people with different attitudes and behaviours, including a mix of people who are frugal or not in how they spend/save their money.

    I’ve also unfortunately experienced environments where it is now acceptable to be blatantly ageist, so long as you’re talking about someone younger.

  3. Frank on January 20, 2017 at 6:25 am

    I totally agree with the main point of this article. People need to take a close look at their spending habits to see where the small leaks are happening. These coffee houses are charging waaaay too much for coffee nowadays. I never go to Starbucks but went with my wife on a whim to see what all the fuss was about. We ended up spending almost $12 for two lattes! Eliminating this “small” expense (and others), add up over time. The little expenses are just as important as the big ones!

  4. Denis on January 20, 2017 at 6:39 am

    Every millennium should read this but alas, probably won;t do any good.

    I cannot even buy once a week at Starbucks which is grossly over priced and frankly not that good. I invest in Starbucks though.

    Before I retired, I calculated how much coffee in a bodum at work cost and it was 7 cents a cup. This is what I called a “no brainer”.

    I have to admit that wine could be called our Latte Factor BUT in my defense, I bought wine many years ago for 30-100$ and 20-30 years later, in my retirement I am drinking 200-1000$ bottles. Good ROI.

  5. Michael James on January 20, 2017 at 8:07 am

    Well said. My son works with a woman who complains about having been shafted by a landlord and being plunged into debt and she can’t dig out. But she still keeps buying coffee and over-priced snacks every day. She can’t see the connection between her habitual spending and her financial situation. “It’s only a few dollars.” For some reason, people consistently underestimate the total of a bunch of small numbers. It’s as though any spending under some threshold, like $10, somehow magically doesn’t count.

  6. KC on January 20, 2017 at 9:14 am

    Great article. I was one of those people doing habitual spending until one month, I was home from sick a lot so I didn’t buy lunch too often. It was weird seeing an extra $300 in my bank account at the end of that particular month. Then I did the math for the year. Wow, that was enough to convince me to watch my spending. I still enjoy my dining out but at least less than half of what I normally do and my savings has ballooned as well as a better waistline!

  7. Glenn Hyde on January 20, 2017 at 10:19 am

    A consistent golf habit (Canada in summer/Florida in winter for example) also could qualify as a “latte factor” – not cheap to play these days!

  8. Liz Higgins on January 20, 2017 at 11:16 am

    My husband and I are both retired, on a very modest pension (mine: my husband does not have a pension). My husband worked in a creative field (video), and during the latter part of his career, he got used to going out for breakfast every morning, getting the news from his iPad, and thinking about what lay ahead in his work day, a habit we very much enjoyed–got the day off to a very relaxing start, he said. While he was still working, and I was retired, I would go with him maybe 2-3 times per week (I felt guilty about the expense going every day). Eventually I started going more frequently. Now that we’re both retired, we both go every day. I still feel guilty about the expense. However, it does get you out of the house every day, mingling (somewhat limitedly I admit) if you’re not inclined to do so normally). We average $20.00 a day. I guess you could call this the breakfast factor. Yes, I’ve added it up, and it’s a fair chunk of cash, but then there’s the enjoyment factor to consider. I still have guilty feelings re the cash outlay sometimes, but I still go.

  9. Jamie on January 20, 2017 at 12:31 pm

    You really hit the nail on the head!

    As a millennial, I was shocked to see how much I was spending on entertainment and eating out after a month of tracking my expenses with the YNAB app. Those small purchases really added up, to where I thought I couldn’t afford the larger purchases that were more important.

    Now I consciously indulge and don’t feel like I’m missing out at all.

  10. Nelson on January 20, 2017 at 1:20 pm

    Fun fact: every time one of us says the latte factor, David Bach gets a nickel.

    I agree little costs add up, and the average person probably needs to cut back on coffee or snacks or whatnot. 100%.

    But I think people reading this should look a little further into what Robb does, rather than what he’s saying. He worked hard and now has a successful business that makes enough money to allow him to be able to afford many cups of overpriced coffee. That one decision (and the subsequent hard work that went into it) matters way more than small, recurring costs.

    In an ideal world we’d want people to do both. But if they do one over the other I’d advocate the working harder one every time.

    • Travis on January 23, 2017 at 6:35 am

      For me the “latte factor” logic is just basic personal finance, it won’t make you rich but it’s necessary to set the stage. It doesn’t matter how people save (whether you count every expense in a spreadsheet or just set broad goals), but if people have no idea how much they’re spending or making, it’s impossible to get ahead.

      I see it the same way as exercise and diet. If you have the perfect diet with no exercise you won’t get ahead. Or if you exercise but have a terrible diet, your gains get wiped out. Being frugal is like the diet, it won’t actually help you get rich, but if you don’t take care of it, it will sure make you poor.

      Since we’re all reading personal finance blogs in our spare time, I’m assuming it’s not an issue for us, but there are people at my work who literally spend money as fast as it comes in. Last week we got into a debate about money and one woman basically said “Well who are you to say what the economy or anything will be like in 30 years. You might not even be alive to enjoy your money, so what’s the point in saving?” Of course, I agree that buying too much house or that second (or third!) car is what’s eating them alive, but the constant consumerism is also adding to their credit card bills. Cutting out small expenses would be a great first step to getting their finances in order.

  11. Bryan on January 20, 2017 at 1:41 pm

    Being a “millennial” myself, I discovered the latte factor but with other items. Fast food multiple times a week; designer clothing; drinks while out for dinner; the list goes on and on.
    In my early 20s I realized just how much money I was wasting by being too lazy to cook, and by trying to conform. Not all, but a lot of people in general, have this habit and it can really add up.
    A great eye opener for everyone to truly look at their expenses and see what might be frivolous.

  12. Dames in Debt on January 20, 2017 at 2:38 pm

    As a millennial, I think you missed the point. It’s not just my generation consuming lattes with reckless abandon, it’s all of us…at least we are the farthest from retirement when we do it. We might spend more on lattes, but we are still saving more than previous generations did at the same point, and with less resources too.

    Your point is that a latte ought to be a little indulgence, well, it is. I get my fun coffee (which is never more than $4) whenever I want, and it makes me happy when I’m eating leftovers for the 5th time that week. The savings to my sanity is immense, plus, it keeps me from spending more on splurges because I’ve been sacrificing for so long. I make coffee at home every day, but a latte is not coffee – it’s espresso, and unless I fork over money to buy an espresso machine, $4 ain’t a bad deal.

    You can have daily indulgences if you budget for them, and while $1408 might be a big chunk of money at the end of the year, it’s not when compared to the off-the-wagon spending I would’ve done after months of sacrifice.

    In my opinion, the latte is like a cheat day on a diet…it’s a little splurge that keeps you from going overboard, and therefore, totally worth it. You can definitely yell at the $22 toast people though…no idea who those fools are, but they are not the norm.

    • Echo on January 20, 2017 at 3:00 pm

      “You can have daily indulgences if you budget for them.”

      Bingo!

    • Denis on January 21, 2017 at 8:15 am

      Latte is a coffee? Really?

      4$ for a latte every day or so no matter what is kinda insane IMO. That “ain’t cheap in my books. Well I am a Starbucks investor so thanks a lot though. A good Espresso machine is maybe 300$ so 75 days, it is paid off.

      Note that just being furthest from retirement does not mean you can waste money now. You guys have the compounding effect at its best at your age. I started investing and saving for retirement in my early 20’s. Bought my first home in my mid 20’s and thru savings had more than 20% down payment. I upgraded my home twice and retired at 54 (1 year earlier than planned).

      Because of all this, I can do what I want, when I want, never been busier nor happier.

      • Sarah @ Couple of Sense on January 21, 2017 at 2:52 pm

        I want to call out for the record that a good espresso machine is not $300. For an espresso machine that’s entry level; this is not what the coffee shop is using. If you wanted to get a good espresso machine you are looking at least $1000-1500, very good $1500-2000 and excellent $2000+. But that’s not realistic for most so we will keep your $300 as the baseline. Also if you are going to make a latte every day you would need a grinder since at that price point you won’t have an all in one. Then you would need a milk pitcher to froth the milk and a tumbler to transport the coffee on the go. Add in taxes and you are looking at $500. But that 75 days you were referring to pay off the machine is not factoring in the actual use of the machine, just the startup costs. If you get regular milk, decent espresso beans and sugar you are looking at about $500/year for supplies including extra water/hydro you would need to use to support the machine and cleaning/maintenance of the machine itself. So that brings us up to about $1000 for the first year. So instead of 75 days you are looking at 250 days (assuming the $4 latte price). And it’s not really paying it off, that’s the break-even day when it’s cheaper to buy a machine then to go out every day and get coffee. But what if your habits change and you for some reason stop drinking lattes every day? You can easily just stop going to the coffee shop and you didn’t spend the money. If sometime in those 250 days you have to stop drinking coffee you would actually lose money and have a depreciating “asset” taking up your counter space. I agree with Dames in Debt. If spending money on coffee helps to stop spend money on other more impulse purchases it’s actually a form of control. Also the way I see it if you budget for it and have all of your other bases covered who cares what you spend money on?

  13. Jax on January 21, 2017 at 8:07 am

    Yes, the inability to see how the small, daily decisions add up with seriously hinder long term financial health. But this isn’t limited to millennials. I think people of all ages have this problem. This recent study showed that ” 48 percent of boomers are not on track to be able to afford basic expenses in retirement.”
    http://www.aarp.org/work/retirement-planning/info-2014/boomer-retirement-little-savings-means-working.html
    Maybe that should be the lesson to millennials?

  14. Guy in Calgary on January 21, 2017 at 2:21 pm

    Millennial here. Good article although the strong language was not really necessary. Just because the author offered a different opinion on why millennials experience financial shortfalls does not mean they are “whining,” they have valid points. To offer perspective I save, my wife and I live well within our means and are very comfortable. We both have jobs that we worked hard to get (we paid our dues, started at the bottom etc.). Almost all of my friends are like this too and they get equally annoyed when the words entitled, privileged, lazy or anything similar get thrown in our direction.

    There are an awful lot of people in older generations that are not even remotely close to being ready for retirement but articles with regards to them are often written with sympathy, empathy and respect. But they have the same damn bad habits. I wonder how this comes full circle?

    What really grinds my gears with these types of articles is how our generation is being generalized. Everyone takes what they see on social media or what the news says and runs with it. All my friends are millenials and yes some indulge but are still successful in their own right. It’s the same with every generation. At the end of the day this is not a generational issue and it is not new so stop spouting off like we do not know what we are doing and are all the same. Unfortunately a millennial going to work, saving and being well off isn’t really news worthy.

    • Denis on January 23, 2017 at 12:53 pm

      Guy in Calgary,

      “At the end of the day this is not a generational issue and it is not new so stop spouting off like we do not know what we are doing and are all the same. ”

      True. Keeping up with the Jones was invented even before my time.
      We all fall for marketing, why so many are in that field. I have to fight myself not to go buy my dream cars or when I got an offer for my cottage I could not refuse, had to fight myself to accept it.

      One problem with savings and this is GENX too, everything has gotten so expensive. Imagine you guys going into Toronto or Vancouver market, its insane. You might be renters for ever which is a shame as resl estate is a wealth builder that you live in. You will never afford the best wines. etc.

      I get it.

      On the other hand, the markets have so many tools and products and fees have never been so cheap. You have better chance to build wealth that way than we did.

      Good luck. Save for retirement ASAP, think of your future you.

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