#010: Should you buy that latte?

We all throw away too much of our hard-earned money on unnecessary ‘little’ expenditures without realizing how much they can add up to. The phenomenon whereby many small purchases add up to a significant expenditure over time was infamously termed as the ‘Latte Factor’. The advice is fairly simple: Don’t spend money on coffee because it’s so much cheaper to make it yourself at home. Instead, take the $3 or $4 you’d spend on a latte every day and invest it or save it for your emergency fund.

One Latte at $3.5 x 5 days = $17.5

And continuously for 1 year (x 52 weeks) = $ 910

And that is solely for a single cup of coffee, and how about if you must drink two lattes per day? Or with a different type of Latte factor? Have other types of Latte Factor? YES!, example: eating lunch out every day, consuming fast food for convenience, subscribing to the cable/TV channel, magazines or newspaper that you don’t read?

“The latte factor” follows the basic idea that small wins add up. Some financial experts argue if you ditch your $4-a-day latte habit — or any small luxury you indulge in on a regular basis like bottled water, fast food or soft drinks — you’d have quite a bit of money to contribute towards savings instead. Over the course of a few decades, that money could grow substantially, and even make you a millionaire, thanks to compound interest. But if you look closely it would take a lot of coffee purchases and a high annual return (10-15%) to turn your latte savings into $1 million.

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We believe that this is a terrible advice because there are many layers of things that are wrong with this advice. This is just society patronizing underrepresented minorities on money. Regardless of the size of your paycheck, you probably might be making enough money to become financially independent. 

To try this out, start by determining your “latte factor” by tracking your expenses for at least one day and see exactly where you spend your money. Budgeting is supreme and if your “lattes” are accounted in your budget, go ahead and relish it!

Nearly one-third of your money can be spent on whatever makes you happy. That could be travel, electronics, clothing or daily lattes. You should reward yourself for budgeting with discipline.

Whatever advice is not in alignment with whatever vision you have set for yourself, it’s OK to reject it. There are so many ways to build wealth. There are so many paths to financial freedom. And your job is to find the one that works for you the best.

But, as infuriating as it is to be patronized, that’s not the biggest issue. Don’t get hung up on the idea of cutting back on small purchases. Rather, focus on the bigger, societal inequities, like the wage gap, the student loan debt crisis, the pink tax and the investing gap. All this nonsense about lattes is shifting the attention — and thus the blame — for the underlying systemic money challenges underrepresented minorities face.

Our efforts need to be directed towards changing the inequities, as opposed to making people feel this sense of guilt and shame over having one lovely cup of coffee in the morning (transformative powers of a good cup of coffee is underrated) . The inequities do exist. Fight against them. Let’s fight for paid, mandated paternity leave at the country level. Let’s fight to close those gender pay gaps. And while we’re doing that, don’t forget to enjoy your latte, please.

So yeah…go buy that latte, preferably from a local independent businesses. 

That’s it for today dear reader. See you next week.

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