3 Reasons Why Keeping Your "Latte Factor" Will Help You Save Money

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"The Latte Factor" is a term referring to the small expenditures that you make every day that could add up to huge savings over time. This concept was popularized by David Bach in his book The Automatic Millionaire (affiliate link) and now there are many articles that tell you that saving just $5 a day on coffee will make you a millionaire. The math behind these articles is sound, but should you give up your little indulgences? Here are a few reasons why keeping your "latte factor" will help you save.

It is a small price to pay for happiness.

My husband's latte factor is bubble milk tea. Every week he gets one because it makes him happy. When I started dating him I actually told him that his milk tea fix is costing him hundreds of dollars a year. Needless to say he was not pleased and argued that he saves enough money to justify such a small expenditure. After I thought about it, I actually agreed with him.

He works hard for his money and he deserves to get this one small thing that costs less than $5 a week. I believe that saving money should not be a punishment, so when you deprive yourself of a tiny expense that makes you happy, the whole exercise of saving money will become a negative experience. When we experience negative emotions we are more likely to give up on an endeavor, so if your latte factor gives you a cheap dose of happiness then it is worth keeping.

You can save more elsewhere.

If my husband did cut out his milk tea habit then we would have a few hundred dollars more a year, but that pales in comparison to how much we saved when we asked for a rent reduction and refinanced our mortgage. If you really want to keep your small indulgences then you should try to save on the big things. How many lattes can you buy if you cut out cable TV and watched shows online instead? There are many ways you can save without sacrificing anything in your lifestyle, and I think those things should be done before you stop going to Starbucks.

Reward yourself for saving.

Ultimately, money is meant to be spent. I think it is a good idea to keep your latte factor as a reward for saving money. For example, if you hit your savings goal for the month then there is no reason not to enjoy a little bit of your money. If you keep your small luxuries as a reminder to save money, then they will work out to be positive reinforcement.

The concept that saving a little every day will add up to a lot over time is definitely sound. However, the fallacy in the idea that "eliminating the latte factor will make you a millionaire" is that those who cut out their morning coffee or newspaper usually do not save that money at all. More often than not I have seen people who stopped spending on little things blow the "savings" on something bigger. As long as you are committed to saving consistently, you can build up your nest egg and still keep the small expenditures that enhance your life.

What is your "latte factor"? Have you attempted to cut it out to save money?

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Guest's picture

"As long as you are committed to saving consistently, you can build up your nest egg and still keep the small expenditures that enhance your life"


I could not have said it better. I hate hearing cut off the cable, lattes, lunches. Normally it's the big expenses that keeps people drowning. Mortage, Car, big ticket electronics.


Lattes is more like 4% of the problem

Guest's picture

My latte factor is probably a certain kind of energy drink mix I like that now only seems to be available from one place online instead of at any local stores (which means shipping costs). I keep trying to find a substitute I like as much... but with no luck to date.

Just out of curiosity, what is "bubble milk tea"?

Thank you!

Xin Lu's picture
Xin Lu

bubble milk tea is a drink that originated from Taiwan.  It's a number of drinks with tapioca pearls.  It's also know as "boba".  There is actually a whole wiki page about it:  http://en.wikipedia.org/wiki/Bubble_tea

Will Chen's picture

... and they're sinfully delicious. =)

Guest's picture
Sasha A. Rae

I love that you're not advocating cutting out a small indulgence that makes you happy. It's only when a person has the habit of spending on several small indulgences that it really adds up. I agree that it's better to focus on reducing the prices of or eliminating bigger ticket items that really eat into a budget.

Guest's picture

Thanks for this! I feel like some people have gotten so judgmental over everyone elses' latte factors and it's ridiculous. 

The problem usually isn't *a* latte factor. It's when people have many latte factors, most of which don't even bring them that much happiness but that they don't question because they're just habit at this point. 

I think every expense should be questioned, no matter how small, but that doesn't mean that they all get eliminated. Sometimes you have to cut back on some to reach your financial goals, sometimes you find replacements, sometimes you keep things as they are and just try to savor them all the more. 

Guest's picture

Yes. And yes. One problem with "latte factor" cuts is that most people don't really track them. If you commit to sending $20/week to your savings account, then maybe you're making a difference. Without some conscious and concrete thinking like that, it becomes an exercise in futility and even deprivation.

Better to cultivate a lifestyle that's generally frugal and money-conscious and then enjoy the HECK out of your latte factor! :)

Guest's picture

I am one of those people with multiple "latte factors" which could - or arguably should - be cut from my budget.  Just last year I joined an expensive upscale gym and hired a house cleaner to come every 3 weeks.  I also actually buy lattes at 5 times a month, though alcoholic beverages are a true near daily expense for me (on average) that could be cut.

But the thing is that I'm saving over 20% of my gross income.  So as much as I can't justify my exessive shopping/travel/dining expenses - I don't care to stress about cutting them out either.  Sure I could save more - but what's the point anyway?   Most people can't afford to splurge everywhere - I don't do all the spa/beauty stuff most girls do, and I have negligible entertainment expenses, and I spend very little on my car (which I've had for 4 years and dont' intend to replace anytime soon).  But I think as long as you're saving in the double digits and have an emergency fund and no credit card debt, then splurge away - big or small!

Guest's picture

As you've indicated in this article, whether or not to cut out your particular individual 'latte factor' is a personal decision, and one that doesn't always need to be made.

I think the main benefit to come out of the wide spread acknowledgement of the latte factor is that people are now far more aware of how the small things can, and do, add up to a decent sum. This awareness means that people are that little bit more aware of how they may have ended up in the financial circumstances they are in (a lot of small costs for example), and they (will hopefully) also realise that it is a potential solution if they are looking to make some change.

Guest's picture

Before we moved to France, we cut out the latte factor and saved up the cost of one plane ticket to Europe--that's not a negligable expense . . .However, you're right about latte's being nothing compared to some of the other expenses--like eating out.  Now that we've become very, very frugal, our latte budget is back in.  It's one of our few outings (and here in France, it would just feel weird not to go out to a cafe once in a while!)  If you think about it, going out for coffee is so much cheaper than going out for dinner--so if that's our way of splurging, I say, no problem.  Great post.

Guest's picture

I agree that we need to enjoy life and money is made and meant to be spent, but I think we have to be careful about the "latte factor".  Consumers need to know how much that latte factor is costing them monthly and yearly.  Some spend $3 a day on coffee which is $1,095 a year.  Wow, this is just on coffee!  I like coffee a lot, but being a consumer miser, I vowed not to buy coffee out (I admit that this is #9 on my list of extreme saving methods).  Instead I have it at home or at work where we have a machine that brews free coffee for employees.  Now, this coffee is not as great as my favorite Dunkin' Donuts coffee, but it’s so much cheaper.  I also drink hot water instead of coffee because this is healthy and often free.  On only rare occasions will I treat myself to a cup of coffee out.   


Guest's picture

I disagree with this "the little stuff is worth it", and that's based on 30+ years of experience and actually becoming a millionaire: owning one home outright, having a second home, over $100K in a bank account and college funds for kids. The key issue here is mindset and discipline. If you really want to become rich, you are focused and passionate about reaching your goal. And that includes little expenses. The best entrepreneurs I've ever worked for are frugal to a fault: reusing typewriter ribbons and the like. They know how hard it is to make a buck. The same thing is true for individuals. And remember, what you're spending is after tax dollars. Add anywhere from 10 - 40% (based on your tax dollars) to the cost of something to figure out how much of your salary is being eaten up. Your best bet is to learn how to enjoy the small things that don't cost money -- sunsets, taking walks, being with children, etc. Those are investments, not expenses.

Guest's picture

I think it depends on whether your goal is to "become rich" or to live well.  If the former is true, then everything you're saying is right on the money.  If the latter is true, I agree that everyone deserves to have a latte factor if their situation allows.

Guest's picture
Guy G.

Hey thanks for justifying my wife and my addiction to the weekend Starbuck's Caramel Macciato.

I use to feel guilty, but you're right. As far as dates go, $10 is pretty cheap.

Guest's picture

The problem isn't little expenses per se... it's buying things reflexively that don't really give you much pleasure. For my morning caffeine fix, I make my own. A latte I make myself at home gives me about as much pleasure as one from Starbucks. More, in fact, because I can use organic milk, fair trade beans, and my own mug and the cost is still less. It only takes a few minutes in the morning, no more than the time to stop off at Starbucks and wait in line, and doing so is really just a matter of getting into the habit.

On the other and, going "out" to Starbucks is a great cheap date, a pleasant way to meet friends or treat my kids, and I wouldn't give it up. There aren't too many places to go out for $10.

So the answer, yet again, is to spend consciously and examine how much value you are getting for the money.

Guest's picture

To take "the latte factor" literally, the caffeine in that latte gives me a rocket boost.  Therefore I can work more!  

Guest's picture

What is my latte factor? I would have to say it would be yoga. I'm addicted, especially hot yoga-- there's nothing like sweating after a day of work!

I absolutely can't give it up, so instead I don't buy clothes. Lucky for me, I work in a casual work environment and in a casual city (New Orleans) and I can run around all day in cut off shorts and tank tops and no one minds. I probably save thousands cutting out THAT expense!

I try to focus my money on activity and experience, rather than stuff. I'll go to yoga, an around the world surf adventure, or a concert before I spent that money on a pair of shoes.

Guest's picture

One way my husband and I are trying to control spending while still allowing this is that our budget includes an allowance for each of us. The rules are pretty simple: don't go over your allowance. (hubby's still working on this, but we're getting better)

So, my hubby cannot say *anything* about how I spend my allowance, and I cant say anything about how he spends his allowance, as long as we don't go over-budget. I recommend this, because it gives us each some wiggle room in finances, but controls it well. And, if I really want to save up money for something big, I can!

Guest's picture
Amy Saves

I used to dine out 3-4 times a week, but have since cut that down to around 2. It saves me a ton of money when I cook at home and use it on fresh groceries.

Guest's picture

I don't think you have to eliminate your latte habit. Rather, control it. Spending that $3-$5 on something silly everyday adds up really quickly.

If you can cut it down to once or twice a week, you've saved a significant amount, and you can still enjoy yourself.

Guest's picture

Little things that make you happy don't cost as much as a BMW car payment or a mortgage payment on a house that is 1000 square feet bigger than you need. We are a one car family which allows us to save $600 - $800 per month. Now that adds up to quite a bit of SAVINGS!

Guest's picture

One thing the Latte Factor conveys is mindful spending. Think, and make sure what you're buying truly brings you the enjoyment you intend for it to bring. At first, the Latte is a special treat, but once you go to buying one everyday on the way to work and drinking it without thought, it's ceased to have much value (other than an injection of caffeine).

Indulgences are fine, as long as you recognize them as such. When they become routine, you're wasting your money.

Guest's picture

I could not agree more with this concept! For years, I was really, really frugal with myself (but not with my kids or my husband). I would not think twice about buying an ice cream for my son from the overpriced truck on 91st Street, but I would often talk myself out of the little under-$10 pick-me-ups (like an afternoon cappuccino) that would have lifted my spirits and rejuvenated me to be more productive. Now I realize that small indulgences give me the energy to things that save more money than the price of a frothy yummy drink at Starbucks. When I am feeling happy and energized, I spend the time to look for bargains on everything from kids' clothes to airfare. And I make dinner instead of ordering in. When I am feeling "fried," I notice that I waste money out of pure exhaustion.

Guest's picture

I agree with you. Though some should definitely be more careful than others about how they spend, it's never a bad idea to responsibly enjoy life's pleasures :) After all, you never know how long you're going to be around, right?

Guest's picture

I've heard the "money is made to be spent" argument before...from people who had $0 saved for retirement or even to replace the furnace if it died in January.
The real problem comes when people have "latte factors" that are purely habits or conspicuous consumption, and they don't really get any joy out of it. Buying a soda every time you go thru a check-out line, because you see the cooler and think, heh I'm thirsty, when there's a water fountain twenty feet away, is as pointless as paying for overpriced coffee every day because you stayed up too late and forgot to prep your coffee pot (or think you don't drink enough coffee to justify buying a coffee pot, seen that too).
Paying attention to overall spending and saving habits, and trying different things to save more if your current "plan" needs work, is the key, but it takes effort so many people don't bother.
I'm not sure if I have a latte factor right now...I make my coffee & tea at home, refill my metal water bottle before I run errands, and rarely eat out...don't color my hair or do spas or gyms...get my books from the library and rarely buy magazines (they all sound the same after a while)...I sew & knit and have over-bought supplies in the past, so that's an area I've cut back on, not because of cost but because it was plain that it wasn't all getting used.