The “latte factor” is a well-known concept in personal finance. Essentially, the argument is that you end up wasting so much on little things — like a daily coffee drink — that you cost yourself the ability to become wealthy. We’ll be referencing this article from Nasdaq.
Many people have bought into this pervasive myth and believe that stripping everything fun out of their budget is the right way to grow their savings account or accomplish other financial goals. In reality, it’s not.
There are many other common decisions people make that have a bigger effect on their long-term financial success than buying a coffee ever could:
- Paying a lot for expensive luxury travel
- Purchasing a brand new vehicle
- Investing in things you don’t understand
- Buying expensive furniture
- Renting an apartment that’s too expensive
- Purchasing designer items
- Spending a fortune on expensive restaurants
Rather than nickel-and-diming yourself to death, focus on getting the big stuff right — like living in an affordable house and driving a cheap car.
That way, you can enjoy your money, won’t have to constantly deprive yourself, and can put your hard-earned cash to good use and accomplish your financial goals, like saving for retirement.