Ditching Your Latte Won’t Make You Wealthy — Here’s Why
Personal finance experts left and right claim that the key to financial success is kissing your $5 morning latte goodbye. All my life, I have heard about this “latte factor.”
I will preface this post by letting you know I understand the math behind the point that’s being made here and I believe that making small changes can have a big impact…
By now, you’re probably aware that I enjoy challenging the status quo. The norms around personal finance advice are no exception.
A $5 latte on every working day of the year (261 days on average here in the U.S.) will cost you $1,305 annually.
These finance gurus go on to cite the many other things this $1,305 could do for you. They warn that the opportunity cost is too great to “waste” this money on a hand-crafted latte from your favorite coffee shop.
You know what else that $1,305 will get you?
261 hand-crafted lattes from your favorite coffee shop — or whatever else YOU deem worthy of your money.
Today I challenge the “latte factor” and share why this self-limiting way of thinking about lattes — and other small, joyful luxuries of life — is so last season.
A “one-size-fits-all” approach to personal finance diminishes the importance and beauty of individualism.
We all have different goals, priorities, dreams, and desires. Therefore, it should come to no surprise that each of us has a different percentage of income we feel comfortable allocating towards buying lattes.
This is why having a budget — or as I prefer to call it, a “money game plan” — is so important. When we have a clear idea of what we need and want to spend our money on, we should feel no guilt or shame when it comes to the money choices we make.
Society is going to judge you and criticize you no matter what you spend (or don’t spend) your money on. So, hone in on your priorities and, as Sallie Krawcheck — a fellow disruptor in the finance industry — notably said, “Buy the f****ing latte.”
Networking meetings, catching up with a friend, treating your hard-working team members, going on a casual first date, posting up and writing what will go on to be an award-winning novel (or a blog post like this one, hehe), an afternoon pick-me-up to get some fresh air, a worthy and well-deserved line item in your money game plan…the list goes on.
If we saw anyone doing any of the above, why would we assume they are not financially disciplined, contributing to their retirement account, or paying their bills on time every month?
In fact, if they’re a follower of my blog, they probably use the S-H-O-P method with every paycheck to stay on track with their finances — and treat themselves accordingly!
The key is to create a money game plan that has a special line item just for coffee outings (or whatever your “small joys” are).
It’s crucial we are honest with ourselves about our spending and creating a plan around it. By doing so, we are probably more financially focused and prepared than anyone judging us for our venti-nonfat-coconut-double-espressos with extra vanilla syrup.
In case you missed it:
These types of blanket statements make me want to upgrade my Grande latte to a Venti while buying one for everyone else in the store out of spite. It’s a self-limiting belief that assumes we are not disciplined in the other financial aspects of our lives to be able to generate and build wealth.
A truly abundant mindset and life would see the act of going out to buy a latte as an opportunity to connect, grow, inspire and be inspired — after all, you never know who you will run into!
Also, the math behind the claim that buying lattes is costing you future millions assumes a 10% annual return, year after year, after taxes and inflation, for 40 years. Managing investments professionally, I am here to tell you that that is not going to happen. So breathe easy, coffee lovers — your millionaire dreams are still within reach.
Part of having a comprehensive money game plan is thinking BIG picture. This means understanding our attitudes and habits around money, and how they affect our short-term and long-term financial goals.
Which leads me to my next point…
If you have determined that you have a habit of over-spending, forgoing a latte is like putting a band-aid on a bullet hole.
If this sounds like you, know that you are not alone. The good news? I’m here to help! Shoot me a message and let’s answer your burning questions.
We’ve seen them all — fad diets, get rich quick schemes, and other claims for a quick fix of a long-term, complicated problem. Abstaining from lattes and depriving yourself completely of something that brings you joy will not address your money woes. Even more so, it will not help improve your relationship with money — which is what everything you do is built on!
Soak up life’s small, joyful moments and savor every sip of your pumpkin spice latte. Be confident in your ability to create and execute sound financial principles in your life.
I want you to weigh in — what are your thoughts on the “latte factor”? What habits have you discovered to help keep your spending in check while still enjoying life?