Fact Check Finance: Cutting out lattes will make you rich
Fact Check Finance is an occasional series that puts common money assertions to the test.
“Are you latte-ing away your financial future?”
—David Bach, Smart Women Finish Rich (1999)
Wasting money is obviously not in your best interest. That’s why, in Get a Financial Life, in talks, in articles, and in interviews, I urge you to find out where your money is going so you can spend mindfully. (It’s all about those wants vs. needs!) Once you know how much is flowing out of your accounts, you can start saving and paying bills automatically. These are the money basics that will put you on the path to building up your credit, buying a home, and accumulating a retirement nest egg.
Just as obvious: Cutting out your innocent morning coffee indulgence isn’t the key to financial success. And yet, the latte finance myth David Bach created 20 years ago endures. I still get asked whether cutting back on small things—whether it’s lattes, avocado toast, or Netflix—can make a huge difference.
In her book Pound Foolish, Helaine Olen pours cold water on Bach’s notion that a concoction of espresso and steamed milk is drowning young people’s dreams of financial stability and a comfortable retirement. “There was only one thing wrong with the latte factor,” she explains. “It wasn’t true. It didn’t work mathematically…. [It was] a catchy slogan that appealed to our desire for a quick and easy fix, but one that bore little relation to economic reality.”
Using Bach’s own calculator, we see that at a 7% annual rate of growth (a pretty conservative figure), you’d have nearly $400,000 in 40 years if you invested that coffee cash in the stock market. But that doesn’t factor in inflation, taxes, or the likelihood of a costly life event—job loss, medical bills—that cancels out your latte windfall. Fact is, you need an overall approach to better your finances, not a quick caffeine fix.
Sadly, despite repeated debunkings, the myth seems to be frothing up yet again, from Suze Orman’s comment to CNBC Make It (“You are peeing $1 million down the drain as you are drinking that coffee”) to Bach himself, who updated his philosophy for millennials in a 2019 book called, you guessed it, The Latte Factor.
The myth is so powerful that writers like Olen and Ramit Sethi have found their voice in part by opposing it. In I Will Teach You to Be Rich, the iconoclastic Sethi writes, “This book isn’t about telling you to stop buying lattes.” Even The New York Times has gotten into the act, publishing a whole column titled, “Here’s some money advice: Just buy the coffee.”
To be fair, Bach takes pains to explain that the latte factor is not just about cutting out coffee. It’s a metaphor, he argues, for money spent on anything that you can do without, and the need to focus instead on saving for what really matters. But readers often take it literally: Stop coffee, get rich.
As the years go by, the latte concept has taken on new guises. In 2017, Australian real estate tycoon Tim Gurner offered a now-infamous take when he said, “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each.” (That led Money magazine to wryly crunch the numbers on how many avocados a millennial would need to come up with a solid home down payment.)
Fact check verdict
Can forgoing an optional $5-a-day expense and instead investing that money make you rich? No. It’s a bland cup of decaf when you really need a high-octane shot of espresso.