Yes, You Can Have Your Latte and Your Money Goals

Since you’re already reading a personal finance blog, I’m going to go ahead and assume you’ve heard of the latte factor.

You might know it as the theory from David Bach, that if you simply cut out a $5 latte from your daily routine, you’ll retire a millionaire. Allegedly.

Even if you haven’t heard the original theory, I bet you’ve had at least one “well-meaning” relative, acquaintance or total stranger be all “You know, if you just saved that money instead!” as you were minding your own business, consuming your life-giving cup of precious, precious caffeine.

The Latte Factor In Brief

On the off chance you’ve never read the latte factor theory in full, here’s a basic overview.

David Bach is all for redirecting mindless spending on routine small purchases – ahem, lattes and such – to your savings account instead. Depending on how much you spend on a regular basis, and what interest rate you choose for your calculations, saving just that small amount of money every so often can add up to real impacts on your money over time.

While this is true, I have a bone to pick with his theory. And no, it’s not just because according to his online calculator, even cutting out a daily latte habit wouldn’t save me enough to retire.

At First, I Was All In

When I was first starting out with my whole ~savings journey~ I tried to frugalize just about everything, and since the latte factor is Such A Big Deal in the world of pop culture personal finance, I was all over it. My beloved lattes were public enemy number one as I looked to find additional savings in my budget.

Now, this led me to some truly, deeply embarrassing moments of faux frugality, like the time I tried to make coffee without buying a french press. And yes, it did significantly cut down on my coffee budget (ahem Starbucks budget.)

But you know what it never, ever did?

Help me hit my goal of stashing away 50% of my income.

Here’s What Ended Up Working

As people on my email list heard a few weeks ago, I crushed my 50% savings rate last month, posting a savings rate of just over 60%.

Sixty percent!

If you had told me that was going to happen a year ago, I would have laughed in your face. I was right in the middle of my first few months trying to hit my goal, and unexpected expenses kept popping up out of nowhere, cramping my savings style.

Now, I’m basically an early retirement blogger with that bonkers savings rate.

And let’s be entirely real with each other: last month was pretty much sponsored by pumpkin spice lattes, because there isn’t enough judgement in the world to make me give them up. (Also, when I say sponsored, I mean in the way that I paid exorbitant prices for them, and they paid me nothing. So … not sponsored at all.)

So if I bought a billion (ok, like… ten) lattes last month, and hit my savings goal anyways, what gives?

What magic did I end up working to make this happen?

Keeping My Big Expenses In Check

First of all, while yes, I’m a luxurious monster when it comes to my latte consumption, I actually am pretty frugal when it comes to The Big Stuff: housing, cars and food. Those three line items can be budget killers pretty easily, and even the One-Minute Budget recommended percentages has them clocking in at a total of 55% of your income.

That’s without any spending on fun, life, debt repayment or savings. So you can see that keeping those percentages down can give you a whole lot of wiggle room to spend on lattes or whatever the hell you want.

Last month – which I will forever refer to as The Month I Saved 60% – here’s how my housing, car and food percentages broke down in relation to my income.

  • Housing – 14.62%
  • Transportation – 3.96%
  • Food – 4.95%

That’s a grand total of 23.53% of my income, which makes it no surprise that I was able to squeeze in a few lattes (and my ridiculous dog budget) and still stash away 60% of my income. My fixed expenses are low af.

…But Also, I Increased My Income

This was the real magic, friends.

Those percentages are representative of fairly fixed costs, like my rent, my ultra-stable spending on food (I’m a creature of habit and eat the same thing, in the same quantities, almost every week) and my car insurance.

So realistically, and mathematically, the only way to lower them is to increase the income they’re being judged against. And that’s what happened.

It was a combination of a few factors.

One, I got a raise a few months ago at my day job, so that’s been a nice addition to my monthly tracking spreadsheets – but before you go ahead and assume I’m some kind of CEO getting bonkers raises, that’s not the main reason my income for this month went haywire.

Nope, that honour goes to my iffy accounting skills.

Namely, I’ve been freelancing for a few months now with a US client, but because it took me forever to get my banking act together, I only got around to depositing my freelance income into my account this past month.

(Cue all of the real accountants being horrified that I didn’t add the income in the month that I earned it.)

So thanks to that bump in my income in September, I posted a truly insane savings rate, and my house down payment fund did a little happy dance about it.

My latte consumption had literally zero to do with it.

What Does This Mean for You?

If you’re not an avid reader of a zillion personal finance blogs, you might not know that earn more vs. spend less is a heated, heated debate around these internet parts.

Well, it is, and this article makes it seems like I’ve declared my allegiance. Earn more, don’t spend less.


(Isn’t there always a but?)

There’s still a place for spending less.

If you can spend less on the things that matter – the ones that really move the needle, like your car and your house – you’re giving yourself a ton of flexibility. If you want to save all that money? Great, go for gold. If you want to spend it on fun things? That’s legit too.

I’m a living, breathing example of this: my “fun” category of spending exceeds the amount I spend on housing every month. Sure, it includes my bonkers-expensive dog, but that is a metric ton of fun. Lattes are just one delicious, caffeinated part of that.

So the next time someone siddles up to you as you’re sipping a magically-spiced dairy based caffeine beverage, and suggests that the cup in your hands is the reason you’ll never retire? Feel free to scoff at them like the personal finance expert you are and tell them the latte factor is so last year.

I know I will.

What do you think, friends – are lattes public enemy number one? Do they have any place in a frugal budget? Or are you on team latte? I’d love to hear what you think! (And if this post has alleviated any latte guilt, I’VE DONE MY JOB.)