Two Invalid Criticisms of David Bach's Latte Factor

Advertiser Disclosure This article/post contains references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.
Last updated on July 23, 2019 Comments: 14

More than seven years ago, I encouraged readers to forget about the Latte Factor. The Latte Factor — a registered trademark — is the core marketing message from personal finance guru and author David Bach. The concept uses a daily morning latte as a metaphor for all small, habitually repeated expenses, that add up to a lot of money over time. A lot of that money could better serve us by being placed in savings or investing than being spent through an unnecessary habit.

The Latte Factor and its bigger meaning have drawn much criticism. Not all financial experts are interested in encouraging those with advanced financial goals to pay too much attention to small changes. I, for one, have raised my concerns with the relevance of focusing on the Latte Factor for long-term wealth building. David Bach appeared on the Consumerism Commentary Podcast to discuss this financial advice, and he addressed some of my criticisms.

From the discussion with David Bach, from discussions with other financial experts, and through internal reflection, I don’t think there’s anything wrong with the Latte Factor, at least, not as much as other critics think is wrong. Most criticism comes from a misunderstanding of the goals of the approach.

Here are some of those common criticisms, including some of mine, and how the concept behind the Latte Factor still holds up to scrutiny.

1. It’s more worthwhile to spend time earning more income than it is to spend time saving money.

I completely agree with the above statement. Given the sentiment, building your ability to earn more money over the course of your lifetime greatly overshadows the benefits of saving $5 a day. There are good reasons why gurus, particularly entrepreneurial-focused self-proclaimed experts, encourage focusing on income rather than frugality through modified spending habits.

  • “Big wins” generate a strong impact on your ability to become financially independent.
  • Cutting back your expenses has a finite limit — when you reach the bottom level of Maslow’s Hierarchy of Needs expressed in budgets. Earning more income is theoretically infinite.
  • Focusing on building income instead of saving more money has benefits in life other than just increasing your bank account balance.

These are all good reasons for focusing on building income. I think everyone should work on building income if they can. But if you’re concerned that the Latte Factor was born in the “self-help movement” and relies on telling people what they want to hear to encourage action and motivate people to change their lives presumably for the better, the “you can earn more money, and so do I!” approach is even more rooted in those empty, aphoristic motivation techniques that sell millions of books.

The big assumption among those who say, “It’s easy. Ignore the Latte Factor and spend your time earning more money!” is that everyone listening to such advice is a middle-class American: gainfully employed, probably in a nine-to-five office job, a little dissatisfied with work and life, and having extra capacity for turning a hobby or passion into a side job and perhaps even a career.

I want to see one of these gurus walk up to a single mom, working two daily jobs to support a couple of children, juggling school and day care, and tell her, “Turn your passion into an income! Get another job! Work harder!” It’s just not going to happen. Some people can’t make changes to their lives as easily as those who write the books. Getting a better job requires education, education requires time, and time is hard to come by if you’re having difficulty raising your family as it is. The appropriate response to our motivational guru with this particlar gall is, “Fuck you.” (Pardon the French.)

Now, bad circumstances can’t always be an excuse for refusing to put in more effort to increase income. Sometimes being better at a current job is enough to make a little bit of an impact. Small changes in behavior can increase the chances. And some people are just lazy — if they are able to increase their motivation, they could see they have more opportunities than they initially imagined.

There is certainly a good proportion of people who can afford the time and energy to build their income through a better job. And those who can should. But that doesn’t make the Latte Factor irrelevant. You can spend your time and effort earning more money at the same time you analyze your spending and figure out where you can eliminate excess.

The Latte Factor is only one piece of the wealth building puzzle. No one is restricted to either saving money or earning more. The good thing is that once your spending habit is identified, it doesn’t take much effort at all, and still has significant benefits in the long run.

2. Frugal people have already eliminated their daily extras.

This was one of my questions to David Bach. Many frugal individuals and households have already eliminated their daily latte. They’ve already analyzed their spending and cut out what they could. Where does the Latte Factor leave them?

It’s going to be difficult to take someone who isn’t predisposed to a frugal lifestyle and encourage them to successfully adopt frugal strategies. People do change their philosophical beliefs, though not many, and a good number of those who do are frugal only out of necessity, for a short period of time. The loss of a job certainly increases the need to change one’s approach to saving money, but a job loss should only be a temporary situation.

To contrast, changing your approach to money through the Latte Factor has to be a lifelong commitment in order to realize the benefits that are strongly touted, like the purported nest-egg increase of a million dollars over the course of several decades. So if there is a good chance most individuals not predisposed towards frugality will ignore the advice anyway, and a good chance that individuals already considering themselves frugal have already applied the Latte Factor to their lives, why spend so much time and effort discussing the concept?

The Latte Factor is about more than fewer less coffee-related drinks. It’s about eliminating automatic habits and making decisions about money something that happens in the part of the brain that handles conscious decision-making. The philosophy encourages people to think about the consequences of their actions.

This is not only good for saving money, but it’s a positive approach that helps people earn more money, too.

In addition, unless you’ve reduced your life to the bare necessities of food, water, and shelter (Maslow’s Hierarchy of Needs as referenced above), there’s more you can do to save money. It’s just a question of how far you’re willing to go to adjust your lifestyle in exchange for long-term savings. Some changes, and perhaps the compromises you make in your happiness, may not be worth the savings, but that’s a decision you can make only once you’re able to fully evaluate the situation.

The Latte Factor encourages people to switch from automatic mode to conscious mode when dealing with financial situations. It doesn’t matter if that philosophy is put into effect through refusing expensive coffees, avoiding the fast food restaurant for lunch each day, cooking meals instead of eating in the office cafeteria, or quitting smoking.

Of all the criticisms of the Latte Factor I think go too far and miss the point of using a philosophical adjustment to change behavior and improve finances, these are just two. I will share three more tomorrow that focus on the happiness derived from daily habits, the “most people fail” criticism, and the erosive effect of inflation that helps overstate the financial benefit of saving about $5 a day.

Photo: Flickr

Article comments

Tom says:

Hi everyone, I’m just putting some feelers out there to see if there’s anyone interested in making a pretty substantial amount of cash within a short amount of time. Only thing this requires is that you have an active bank account or credit card . No cash is required up front to start with. Which means your account can be on a zero balance and that’s completely fine. Feel free to text +1(314) 856 1730, lets talk about the next deal

Anonymous says:

I always took the Latte Factor as a euphemism for the small things that add up.
People fall into different groups, and for those who are unable to increase income for whatever reason, a to-the-penny accounting of 3-6 months spending will help them identify where they can cut back. Whether it’s coffee, the restaurant lunches, or purchased books, this is a decent first step. It can help people go from just getting by to having a bit extra.
On the other hand, I love the Deliver Away Debt concept. A blogger who had a great job, but little chance of overtime, so he used Friday and Saturday nights to deliver pizza and really attack his family’s debt. The single mom with two jobs? No, this isn’t for her. But, there’s a good number for whom this concept can quickly change their finances.

Anonymous says:

Seriously one of the best PF articles I’ve read probably this year! I’m a single mom with 1 job that (underemployed) and i never agreed with the latte factor because it never applied to me. I’ve already cut the “extra” expenses and i’m working on earning more.

Anonymous says:

I’ve always been annoyed Latte Factor thing, because it seemed to me like a mistake to encourage folks to focus on eliminating small expenses that are low-cost and high-reward–things that are really difficult to cut out for not that much return–rather than big expenses that maybe don’t bring you any more happiness than the lower-cost alternative (e.g. non-competitively-priced insurance plans, too much house or car, fancy school tuition when state college would be just as educational, etc.) But you’ve reframed it as the idea of making conscious rather than automatic/habitual spending choices, and I think that makes a lot of sense and also applies to the big things.

So I get the idea, and I agree with it; but I still think the wording puts a lot of people on edge, because it feels patronizing.

Luke Landes says:

I think you’-ve hit on something important, Laura. A lot of personal finance self-help advice — and other self improvement genres — comes across very patronizing. It can start with something like, “If I can do it, so can you!” and end with, “The reason you failed is you didn’t follow my advice!”

Anonymous says:

Love, love, love this. For many families, cutting back is their biggest chance to get ahead. Maybe they will be able to make more money at another time in their life, but they can’t just continue to struggle or sink because making more money is not at option at that time. Plenty of people coupon and reuse and thrift shop and eat beans as a way to survive and even thrive. I think it is pretty arrogant to poo-poo those efforts.

Donna Freedman says:

As a personal finance expert I recently interviewed said, there’s a difference between offering that advice as a lifestyle option vs. a survival tactic. Minimalists and eco-friendly types are CHOOSING to do these things because they like the result. People who are broke do them so that the lights stay on.

Anonymous says:

As someone who was on disability, didn’t drink coffee and has never had her nails done, the Latte Factor drove me insane. I knew it was only a metaphor, but it smacked of the attitudes you alluded to: That if we weren’t better off it was somehow our issue.

I think what encourages people more than anything is to see the savings grow. If that means cutting out (or back on) a luxury, great. If it just means keeping you on the straight and narrow, also great.

Oh, my other issue is: Where did that latte money go? They were encouraging people not to spend it, but I’m guessing it ended up going to something else. That’s why we’re doing the Saved Savings thing. It’s neat to see something concrete, rather than abstract. “I saved $5, so now our savings account has an extra $5” keeps us.

Of course, not everyone can afford to put that money into savings. It may need to go to a bill. But just making sure it’s earmarked somewhere could mean that you feel a sense of accomplishment that even $10 extra went to your credit card debt.

Luke Landes says:


Be sure to read the follow-up article tomorrow. “Where does the money really go?” — that’s addressed! Most of the problems come not from the Latte Factor itself (because it is just a metaphor) but the way most people in the community, particularly the uber-frugal, interpret it.

Donna Freedman says:

I’ll watch for that article with interest. As the old saw goes, “It’s not savings unless you save it.” For all the people who boast about cutting cable or ditching dining out…how many actually put that money elsewhere in the budget instead of saving it or putting it toward a specific goal?

Anonymous says:

Yeah I find the ‘just make more money’ type of attitude to be somewhat unrealistic.
Making more money isn’t necessarily easy even if you aren’t a single mom with 2 jobs.

Donna Freedman says:

Exactly! In some places it’s hard to get even ONE job — and it might not even be a full-time gig. link

Donna Freedman says:

“I want to see one of these gurus walk up to a single mom, working two daily jobs to support a couple of children, juggling school and day care, and tell her, “Turn your passion into an income! Get another job! Work harder!” It’s just not going to happen. Some people can’t make changes to their lives as easily as those who write the books. Getting a better job requires education, education requires time, and time is hard to come by if you’re having difficulty raising your family as it is.”
This plus 10 million. Not everyone who is poor is unmotivated or lazy!
And besides, some of us don’t even like coffee. 😉

Anonymous says: