What is the Latte Factor® and Can It Really Make You Rich?

One of the most recognized concepts in personal finance is the Latte Factor®. David Bach trademarked this concept as part of his personal finance and financial planning ideas. The basic concept is this: If you stopped spending money on a high-priced latte each day, you could save up enough money to be a millionaire. Of course, the Latte Factor® isn’t just about coffee. The idea is supposed to be translatable to any small expense that you have regularly, whether you buy lunch each day in your company’s commissary, or spend a few bucks on some other treat regularly.

Are Your Small Expenditures Costing You Big?

Bach’s Latte Factor® encourages you to look at those little purchases you make without thinking. You don’t think much about spending $3 here and $5 there. However, it could add up — and add up big — over time. If you spend $5 every weekday, that’s $25 a week, or $100 a month. Over a year, that adds up to $1,200.

Bach also has a calculator that can help you see what you would have had if you invested the money. You can choose a variety of returns. For example, investing $3 daily for 40 years at 6% would amount to $179,632.21, rather than spending that $3 each day and paying $43,800 over the same period (365x3x40).

While it’s true that there are many money leaks that can siphon away your money, and plugging them might help you increase your nest egg, it doesn’t mean that the Latte Factor® is going to provide you with untold riches.

Could You Do Better Focusing on the Big Stuff?

While the Latte Factor® may work well for some people, there are those who prefer to worry more about the big stuff, and not worry about cutting the small stuff from their lives. Why worry about cutting out a coffee that costs you $100 a month when you could make a few phone calls and save even more. I recently switched to a high deductible health plan and opened a HSA. I save about $300 a month on my premiums. We save on our car insurance because we are good drivers, and have good credit.

When you focus on the big stuff, the small stuff doesn’t seem as expensive — nor will it hold you back as much. Indeed, sometimes it’s the small things that bring so much pleasure to your life. Sure, my husband and I could stop getting more expensive pastries at the local bakery once a week. We could get them mass-produced at Wal-Mart for 1/4 the price and only get them twice a month. We’d save $24.50 a month if we followed that plan. However, the pastries are better at the bakery, and we really enjoy sitting down together and savoring them. A simple pleasure that, to me, is worth $24.50 a month.

Besides, the $300 I’m saving each month due to my HDHP more than offsets the cost of the pastries. Bach’s calculator says that $20 monthly for 40 years at 6% is a little more than $39,000. I’m not sure I want to give up a simple pleasure for the next 40 years just for an extra $39,000.

The Bottom Line: Your Priorities

Of course, it all comes down to your individual priorities. What are you willing to give up? Would you be willing to work a little more if it meant that you could have money for the future, or pay for little pleasures? In some cases, the Latte Factor® really isn’t going to cut it. If you save $3 a day for 40 years, and end up with more than $179,500 extra, what have you given up? And will it even make that much of a difference if you haven’t done much more than save that $3 a day? It’s certainly not enough to retire on.

What do you think of the Latte Factor®? Is it enough to help you get rich?

About the Author

By , on Nov 18, 2011
Miranda Marquit
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.

Leave Your Comment (8 Comments)

  1. Jean says:

    The thing of it is, you need to cut where you can. I love the Latte Factor idea because I see so many co workers who are renting and complaining that they have no money to pay their bills or to save but everyday they stop and get a big specialty coffee and they buy lunch rather than pack lunch. It’s not bad to get a coffee or eat out once in awhile but it shouldn’t be on a routine basis. The money saved could be automated to go directly to a saving account and as they see it grow, they will be so pleased and excited, they will want to look for more ways to save. Another easy one is to give up expensive hobbies such as golf, or if you are a smoker, quit or at least cut back.

  2. Victoria says:

    First off, your article brings up some key points. It really does boil down to an individual’s priorities. I think the small things can make a huge difference when it’s all said and done. Dave Ramsey says “death by 1,000 cuts” meaning it’s the small things we overlook everyday that can cause us the most financial damage. Priorities matter, but can we change our priorities? Awesome topic! Keep it up!!!!

  3. Pinyo says:

    I enjoy my little perks in life. I think the important lessons here are to watch your recurring expenses and learn how to invest!

  4. You may not become rich but with luck you’ll become AWARE, i.e., you’ll realize the other money leaks that exist. You might also decide to cut the latte (or whatever) down to once or twice a week, which makes it more special when you *do* get it.

    Also, may I bring up an obvious-but-not-really point: It’s not savings unless you save it. If you cut out the latte (or whatever) but leave that money in your budget to be absorbed by some other money leak, you didn’t post any real gain by cutting back. You just bled the money from a different capillary.

  5. Part of the difficulty with the Latte Factor is that by cutting out small indulgences, you can easily make yourself feel deprived, which can then result in falling off the personal finance wagon.

    Instead, you can judiciously give yourself permission to spend money on stuff you like–like lattes–and cut back like a samurai on nonessential stuff and/or stuff that doesn’t give you pleasure.

    The idea is that you have to have ways to keep yourself motivated. Cutting out everything you enjoy is just drudgery, and no one wants to sign up for that–even if it does make you a millionaire.

  6. J S says:

    You need to do both and then some: watch the expenses for big, little, and medium amounts! The point though is many people ignore the coffee and cigarettes and whatnot they are spending without realizing.

  7. Kolton says:

    I think you hit the nail right on about individual priorities. A lot of people are able to afford the luxury of having a Latte everyday. As for me, spending on the little things just need to be controlled. Obviously there are many ways to improve your financial security lifestyle, but it all wont make a difference if you can’t control your emotions when it comes to unnecessary items.

  8. krantcents says:

    I spend $5.55 every week on blended mocha and a oatmeal raisin cookie. It is not a mindless expenditure. It is the only thing I buy all week. I max out my retirement and live on less than I earn. I pay attention to the smallest detail. What kind of life do you want to have?

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