There is a long and drawn out debate in personal finance centered around the latte.
It’s even got its own cool name:
The Latte Factor Debate
On one side of the Latte Factor, you’ve got Team Frugal who says spending $4 – $5 on a cup of coffee is just plain stupid. They argue you should stop wasting money and invest it instead.
On the other side, you’ve got Team YOLO.
Ok, not really. You’ve got Team Big Wins… people who believe you should focus on big wins like avoiding debt, quickly paying off your mortgage, and maximizing benefits from your job.
When you boil it down to its core, the Latte Factor is a debate between people who focus on cutting spending and people who focus on increasing income.
And to be fair, there are a lot of well known and great minds on both sides of the debate.
Team Frugal is full of huge names and businesses in personal finance. Like Wise Bread, David Bach, Consumerism Commentary, and even Lifehacker.
But the Team Big Wins is filled with equally popular and well-known names. Like Ramit Sethi, Young Finances, and Kimberly Palmer.
While there are plenty of people on Team Big Wins, the overall message most of us receive from personal finance guidance is that you should give up the latte.
Heck, I even wrote an article about it called 3 Habits That Are Costing You Hundreds of Thousands.
But regardless of your mindset toward small purchases like specialty coffee, you need to realize something about both ways of thinking.
They both start off with a false assumption.
Both Teams Assume You Actually Want The Latte
The frugal argument is: You should learn to make sacrifices in the present to save money for the long term.
They encourage you to put aside your wants for the sake of saving money. It’s all about learning to suppress your desires and channel it elsewhere. It’s the Mr. Money Mustache way.
People on Team Big Wins, like Ramit Sethi, argue you should only focus on really big purchases and automate your investments. Then spend the remainder of your money on whatever the heck you want. A latte (or any other small purchase) is just a drop in the bucket. So stop wasting your energy on something with such a minor impact.
Do you see the problem?
They both assume you actually want the latte.
But have you ever actually thought about it? Have you ever asked the question? Or have you just assumed, “Of course, I want the latte!”
Could The Latte Just Be Habit?
In a journal article titled The Habitual Consumer, Wendy Wood and David Neal found that 45% of people’s behavior is repeated almost daily.
That means nearly half of everything you do is based on habits.
The article states:
Consumers sometimes act like creatures of habit, automatically repeating past behavior with little regard to current goals and valued outcomes… Purchase and consumption are similarly repetitious.
Do you think your coffee or avocado toast habit could be just that?
To further illustrate my point, let’s look at some hard data from the mega coffee empire themselves, Starbucks.
Starbucks gets roughly 60 million visits per week. That’s 240 million visits per month.
The average Starbucks customer visits a store 6 times per month. And get this, the top 20% of Starbucks customers visit 16 times per month.
That means the average customer goes 1.5 times per week. And the most loyal 20% average 4 Starbucks visits per week!
Let’s look at this another way.
- At 60 million customers per week and an average customer going 1.5 times each week, that’s a total of 40 million unique people going to Starbucks once a week.
- That’s 99 people making a purchase every single second.
- At 40 million unique people visiting Starbucks once a week, that’s 12.25% of the entire U.S. population.
- And that top 20% going 4 times a week amounts to 8 million people.
Obviously, Starbucks is worldwide. But this still gives perspective on the number of people purchasing coffee from Starbucks alone. Imagine the statistics if we included all coffee shops!
Here’s the bottom line. There are TONS of people buying coffee habitually. And you can’t convince me all these people are making a conscious decision every time they purchase.
A lot of money spent at Starbucks is old habits kicking in… AKA mindless spending.
It’s why we eat at the same restaurants, drink the same drinks, hang out at the same places, do the same vacations, and watch the same tv shows day after day, week after week, year after year.
Humans are creatures of habit.
So how do you break the cycle?
You’ve Gotta Get Clear On What You Actually Want
I’ve talked about getting clear on what you want when it comes to monumental stuff. Like experiences you want to have and how you want your daily life to look.
The big things also include large purchases and big career choices. But most people already know the importance of making large purchases, like cars and houses, wisely.
But despite the monumental importance of bigger purchases, it’s also important to clearly define what you want on a smaller scale.
Unlike Teams Frugal and Big Wins, I’m not telling you to give up the coffee or buy the coffee.
I’m just here to ask you one question…
Do you actually want the coffee?
Too often we get into a routine of paying for cable, using an iPhone, buying a daily coffee, or drinking 2 beers every night.
And if you’re honest with yourself, you probably don’t actually want a lot of those things. At least, not as much as you want other stuff.
Imagine realizing you don’t enjoy cable as much as you pay for it. So you cut the $100 cable bill. Now you’re able to save an extra $1,200 a year. That’s more than enough to take a nice vacation every single year.
And that’s just from cutting cable.
I’m not saying you shouldn’t have cable. Just like the Latte, all I ask is that you question your purchase on a regular basis.
If You Actually Want the Latte, Then Just Buy the Latte
The main point is to ask yourself: “Is the cost of this purchase in-line with the value it provides to my life?”
If the answer is yes. Then make the purchase and don’t feel bad (assuming you can actually afford it… meaning it’s not resulting in ongoing credit card debt).
But If the Honest Answer is No, Then Find Something Better
If you ask the question and decide you don’t really value that purchase, then find somewhere better to put your money.
It’s not about suppressing your wants.
It’s about figuring out what you actually want and then spending your money on that.
As one of my most favorite bloggers says, “You can Afford Anything, you just can’t afford everything.”
Focus on finding your anything.
Spend your money on the things you truly value. Then cut out all the other crap.
If you’d like to learn more super practical ways to break the cycle of habitual spending, download the worksheet below to help prioritize the things you want.
Thank you! I always felt a bit annoyed by the idea of ‘The Latte Factor’ and how I felt many personal finance blogs advocated a “give-up-your-latte-and-become-a-millionaire” approach. What if I don’t like lattes? What if I spend all of my money on a car instead? What if I’m just a broke young person who doesn’t have $5 to spend on a latte in the first place? Ha! Thank you 🙂
Nick True says
You’re totally right Kayla! That’s exactly what I was trying to hit on. There’s a middle road between the two extremes, and it start with the question. Glad you enjoyed the post 🙂
Chris @ Mindful Explorer says
Good point on questioning the power of habit. But….the real meat of your post was the statistics on Starbucks. My mind is blown on the numbers of visitors they get.
Nick True says
You’re totally right. I have some friends who work at Starbucks and from them talking I figured Starbucks had a lot of customers, but when I looked up the numbers to write the post I couldn’t believe my eyes.
It’s absolutely insane.
Thanks for reading Chris!
ZJ Thorne says
Questioning everything is extremely important in crafting the life you actually want. For so long, I was opposed to owning property after working for a landlord. But, my desires have changed recently, and I can accept that. I’m working on getting myself to the point where I can purchase the tiny amount of property I want, because I want it.
Nick True says
You’re totally right Zj. Things change constantly. Our wants and needs change all the time, they key is listening to it and figuring out a way to make it happen. Sounds like you’re doing well, good luck with the property!
Hi! Love your videos! Saw this article this morning about redesign of receipts to show where you spent your money, and thought you might like it (that just sounded “spammy” – but I promise it’s a real article!): https://www.fastcompany.com/90347782/the-humble-receipt-gets-a-brilliant-redesign
Thanks for all you do!
Nick True says
Thanks so much for that. I LOVE that article and receipt. Thanks for sharing. Really really cool concept. Would love to see that happen. Glad you enjoyed the videos and articles 🙂
Great info Nick! I actually worked at Starbucks for about a year after I found myself with no health insurance and had to pull $20K from a SEP account to pay for a surgery…ever since (and before honestly), I have joked about being a Starbucks adict…but now when I go (or make Starbucks coffee at home in my coffee press) I just enjoy the black coffee, not the fancy $5-$6 lattes…a cup of great coffee is only $2 and is refilable! So I feel like I get both, the Starbucks fix I ❤️and I’m saving the other $3-$4! Maybe not the point, but it’s a good compramise for me. ??
Nick True says
That’s a totally good compromise. Glad you enjoyed the post! Starbucks definitely has a lot going for it. I totally get where you’re at 🙂
My take? Frugal is often better. A real life example for me is that I often had to drive to Atlanta (a 2 hour commute) during a time in my life that we were paying down the mortgage. I knew I NEEDED coffee for the drive. My solution was to brew great coffee, take it with me and send an extra $5 to the mortgage every time I did it. Something about that extra principal transfer really did it for me (and we did pay off our house!)
Your blog is great; I hope you’re still writing.
Nick True says
So glad that you enjoyed the article I really appreciate it. I love that you were sending an extra $5 to the mortgage, that’s amazing!
And yes, I do write some, but these days I mostly focus on videos. You can see them here: mappedoutmoney.com/youtube
Late to the party on this post but there’s another annoying thing about both sides of the latte argument. They both are black and white, all or nothing arguments.
Most things have a middle option.
Chai lattes are a key component of my day. They are my one luxury item I allow myself because they really do pick me up and make me feel better. It feels to me like an essential and a surge all at the same time.
But I don’t get them at Starbucks or any other coffee shop.
I buy a mix and make them at home. Works out to a dollar or so each day and tastes better than the sweeter version most coffee shops use.
Nick True says
I totally agree Chris! It’s rarely either/or. It’s the middle.
Thanks for the comment!