The Latte Factor: Reach Financial Freedom, One Latte at a Time

The Latte Factor

Are you drinking your retirement away?

Back in the Summer of 2006 I went to Half-Priced Books and picked up a copy of The Automatic Millionaire. I was newly married and wanted to optimize our financial situation. The book was just what I needed at the time. Smart advice on getting ahead vs just getting by with your money.

One of the big themes of the book was the Latte Factor®: the idea that you could reach financial freedom (become a millionaire) by making very small changes to your spending and savings. As long as you automated the savings, you’d reach your goal. I love the concept, and I’ve adopted it in my own approach to savings.

I Don’t Even Like Coffee

I don’t drink lattes. I don’t like coffee at all actually. So, I never took it as an affront that the author David Bach wanted me to give up latte’s for the sake of my financial future. In fact, somewhere along the way I forgot that David actually said to give up your latte. I thought he just meant that you should save the amount that a latte cost, and you’ll be on your way to millions.

Defending The Latte Factor®

Through the years I’ve heard many people rail against David’s concept: saying that it’s crazy to give up lattes in hopes of retiring early, or with millions (i.e. why give up something that makes you happy). I cringed reading these comments because as I understood it, David hadn’t said that, and these folks were missing the point. They were certainly missing the higher-level point: that little daily savings can add up to millions over time. Well, it turns out the critics were right, but only partially right.

1. David does tell you to give up lattes (or the equivalent) in his book. But the way I see it, David’s concept relies on the idea that you don’t have room in your budget, that you are barely scraping by. If that’s the case (i.e. you have a fixed income barely covering your basic expenses), then yes, you need to cut the lattes out of your life to be able to save. Check out the ultimate guide to saving money on coffee.

But who the heck is living like that? Not many of us, and I would contend that hardly any of the folks who pick up David’s book live that way. Today’s U.S. consumer (i.e. most of the people reading this blog) have big incomes, often two paychecks per household, a very nice house, two cars, ten pairs of shoes, two flat screen TVs, and they dine out at least 3 times a week. I’m not saying those are bad things, I’m just saying that it’s ridiculous to pitch the “give up the latte” idea to these consumers. They have it all, and can afford it all. They’ll spend it all unless they start automating their savings, which David articulates very well in his book.

2. Most of us don’t have to give up anything. But we do have to start doing something. That’s the real problem that David’s ideas solve, not the Latte Factor® straw man. As a society we aren’t doing anything proactive to save. Retirement savings statistics are atrocious. It’s not because we have spent our last dollar on a latte. It’s that we haven’t put a single dollar into savings. I’ve said this before: to save money, you need to actually save the money, not just spend less. Saving is the act of physically putting that money into a separate savings account.

Takeaways from The Latte Factor®

First, in my opinion it’s short-sighted to dismiss the The Latte Factor® because you have something against frugality. It’s only one-part frugality. The other part is about small, automatic savings deposits, which is what people aren’t doing, and which is highly effective towards reaching a solid retirement.

Second, most of us have room in our budgets to save an extra $4 a day towards an emergency fund, house down payment, or retirement fund. Skipping Starbucks tomorrow isn’t the answer to our savings deficiency. We simply need to automate and separate our savings effort.

What do you think about the Latte Factor®?

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon. He created this website back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence. He uses Personal Capital to track his wealth. All the content on this blog is original and created or edited by PT.


  1. A coworker once told me that when she was first married she would put however much money she “saved” at the market (by using coupons or whatever) and place that amount into a jar which would eventually go into their savings account.

  2. Maggie@SquarePennies says

    I think you’ve boiled it down to its essentials: you have to actually put money into a savings vehicle to save money. Too many of us get suckered in by “saving money” on our purchases only to spend that “savings” on other good deals. While I like getting a good deal as much as the next person, I try to avoid too many deals! So I don’t frequent the deal sites unless I need something. The automatic savings method is the best, IMHO, and we keep a change jar for the small daily savings. That gets transferred to the savings account too. I do have a latte for an occasional treat, but the calories in the version I like are too high for daily consumption! lol

  3. Derrik Hubbard, CFP says

    I like the concept of The Latte Factor…small changes over time can really add up.

    I think that most people, although they understand it, don’t effectively translate any savings they make on a daily basis into actual forced savings.

    In other words, they save money on x, but because that savings is still in their personal accounts, it just ends up getting spent on something else!

  4. optionsdude says

    What a great take on David Bach’s concept. I love your analysis. You are right that we don’t do enough to save nor live within our means. I am guilty as well, but I have done some automatic things like funding a 401(k) and investing in real estate which will be paid off when I turn 65 years old.