I’ve been quiet around here for a few weeks, because I wasn’t really sure how to put some of my ideas to words. Instead, I just read 3 books in the past 7 days, including The Automatic Millionaire by David Bach, The Richest Man in Babylon by George S. Clason, and a work of fiction by a writer in our PF community, Enemies of Peace by MK Williams.

Each of these books got me thinking about various personal finance topics, but the one that stood out to me first was David Bach’s book, and the concept of “The Latte Factor” (TLF). A lot of people have written a lot about TLF and have come down strongly on one side or the other of the argument. TLF isn’t really about some expensive daily cup of coffee at all… it can be anything in your daily life that costs real dollars and that are a recurring expense.

I’m just a simple guy, and I don’t even drink coffee, so I always had trouble believing in TLF. I would wonder, “How could people spend their money so foolishly that they end up broke before the next paycheck?” Surely I don’t have any TLF in my own life…

For many years, I’ve used the “Anti-Budget” that Paula Pant talks about on her blog Afford Anything. Basically, the gist is to save your intended savings rate off the top (Pay Yourself First) so that you are not tempted to spend it on anything, neither on needs nor wants. By doing this, you are meeting your savings goals and not having to worry so much whether you spend extra on dining out, or on entertainment, as long as you instinctively cut back in other areas.

That’s all well and good, and my Anti-Budget has allowed me to save ~50% of my salary for the past few years, sometimes more, sometimes a little less. But I never really stopped to contemplate the things that I was spending the other HALF of my income on, on an annual basis. So even though I have never, and will never, spend $5/day on a latte or other coffee-based beverage, I have my own little spending demons that add up to significant sums of money.

I don’t spend $5 a day on lattes, but in the past 12 months I have spent $936.80 on pizza. That’s $3.50 per day, on average. (Update: In 2019 I spent $1,039 on pizza. Yikes)

I don’t buy overpriced coffee beverages, but I’ve spent $2,078 in the past 12 months on a stupid bundle of TV, Internet and landline phone(?!!!!) from Comcast/Xfinity. That’s $5.70 a day right there, more than TLF! (Update: In 2019 I spent $1,046 – win! I dropped cable, kept internet, and use Netflix, Prime, Hulu and CBS All-Access, plus grab channels over-the-air)

I would never be so stupid to pay that much for a morning pick-me-up, but I’ve spent $917 in the past 12 months on annual fees for 6 separate credit cards! While I do still experience more value from each of these cards than the annual fee they charge, perhaps I should look into cutting a few to save myself a few hundred dollars per year in WASTED money. That $917 is $2.50 per day, every day, over the course of a year. (Update: In 2019 I spent $937)

So just with these three examples, I’ve spent $11 per day, 365 times, and what did I get? Crappy TV and internet service (which I don’t even use 90% of my life: sleep, work, travel, etc), a bigger waistline from too much pizza intake, and wallet stuffed with credit cards.

But that’s only $11… that doesn’t really set me back too much, does it? That’s a hair over $4,000 per year! Let’s assume I stop this wasteful spending and put it into my trusty Vanguard VTSAX index fund. Compounding at 7% per year, I’ll have $24.6k in 5 years, $59k in 10 years, $175k in 20 years, and a staggering $404k in 30 years, when I hit age 65. Those little habits that only total $11 a day will have really added up to a big amount of money by the time I hit a standard retirement age. Should I keep eating take-out pizza, being overcharged for cable by Comcast, and paying for the benefit of carrying credit cards? Sure, maybe in small doses, but not at the expense of $11 per day, every day, for the rest of my life!


I actually started this post to write about a $5 bill on the ground. It’s right on the sidewalk between your car and the front door to your job. It’s there every day, and it’s yours to pick up and keep, if you want it! Every Monday, Tuesday, Wednesday, Thursday, and Friday, plus for some reason, it is there on Saturday and Sunday too, whether you go in to work or not. Given this example, I think most of us would stop, stoop down and scoop up the $5 bill every day without giving it much of a second thought. Who keeps leaving this perfectly good money on the ground? What a waste! But we don’t think about our own wasteful spending habits, the ones that drain $5 or more from our wallets/purses/accounts every. damn. day. That $5 bill is yours to keep, as long as you don’t spend it mindlessly at Starbucks or wherever your particular TLF is spent.


So if you want to drink your daily latte, drink the damn latte. Hell, I know the annual Pumpkin Spice Latte comes out this weekend, and as a shareholder of both Starbucks and Keurig/Dr. Pepper, I welcome the seasonal uptick in hot beverage purchases. Just know that those little indulgences add up… just like the main characters in MK Williams’ book Enemies of Peace (which is seriously so good, you guys should read it… it has a wonderful story-line about the path to FIRE vs. consumerism).

  1. Hey, you are saving 50% of your pay and you are worried about cable and internet? Get a grip, you are doing fine. You might be getting a bit obsessive if you don’t watch out!

    1. Thanks Steve. I’m not really obsessing about any of this… Just using examples straight out of my own personal spending history instead of made-up examples like the mythical $5 Latte. I’ve never bought one of those, so I have no idea how much they cost, but I would bet real money they aren’t $5.00 on the dot.

  2. I hear both sides of the story with the latte factor. I get not judging people if they are doing fine and want to knowingly indulge in something. But if you have truly never evaluated your budget for chaff, it’s totally worth doing. Latte factor money needs to go to things that truly enhance life either through joy or convenience. Otherwise it’s just waste. Don’t get me wrong, we’ll never be perfect spenders, but despite steveark’s comment, if you find things not adding value, why keep spending on them if they don’t bring joy? Find what does instead.

    1. You’re absolutely right! When these little indulgences become commonplace, the amount of joy they bring you becomes less and less until there’s no additional joy at all from them. I’m going to scale back the frequency and ratchet up the amount of joy they bring me 😃

  3. The annual credit card fees have bitten me a few times too! I never seem to get them canceled before I get charged again, and now that we’re in a season of life where we aren’t traveling a lot (little one at home), I’m not fully taking advantage of all the perks the cards offer in return for that annual fee. That’s why the last time I signed up for a card – a Hilton Amex – I just went with the no annual fee option. The points reward was a little lower, but it was still a great deal.

    1. I have that card, too… But there are 6 others that I’m still paying annual fees on because I value the rewards that come with it, such as 3 cards that have a free annual night certificate (SPG, Hyatt and IHG) that are worth way more than their fee. Then there’s my beloved CSR, plus 2 airline cards that give me reward miles for paying the annual fee… So those are kind of innocuous. (JetBlue and SW)

  4. I agree – drink the latte if you really want to.

    And it really doesn’t hurt to look at your spending and check that it all brings you value -and chop things you don’t love any more.

    1. I completely agree. I’m ashamed to admit I once paid for 13 months of a gym membership and I stopped going in month 4… Laziness is a wallet-killer sometimes!

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