When I was at Uni, studying for my masters’ degree and actively looking for a job, I realised the ugly truth that good grades and excellent academic conduct won’t ever bring me the extra money promised by my parents when I was a child. You know… the good old “go to school, take good grades in order to get a good job, that pays well”.
This is probably one of the biggest lies parents tell their children. Or they simply preach what their parents told them.
The bottom line is that I looked into expanding my knowledge in areas I wasn’t ever educated properly: finance and wealth.
I read books from the most illuminated authors in the area of finance and personal development: Tim Ferris, Dale Carnegie, Napoleon Hill, Robert Kiyosaki and many more.
There are some really nice books on these topics, but this is a discussion for another article.
Today I want to talk about a concept that I see too often in online articles and videos about personal finance, and that’s the Latte Effect.
What Is the Latte Effect?
The latte effect first came in the personal finance field in The Automatic Millionaire by David Bach. Or at least that’s what the author claims.
The whole idea was to give people a very basic example to understand how cutting on small, irrelevant expenses can pile up nicely. But now people are using it as the ground 0 rule of getting rich.
In his book, Bach asks one of his students to describe her day in spendings. The girl ends up realising she spends about $7 daily on coffee, muffins and other irrelevant things.
$7 spent daily x 5 working days = $35 a week $35 / week x 4 weeks / month = $140 a month $140 / month x 12 months = $1,680 each year $1.680 / year x 40 years = $67,200 by the time you retire
Just think of all the things you can do with $67,200, especially if you invest them wisely!!!
… which leads me to my first issue with this concept…
It Doesn’t Tell You How to Actually Save
Most personal finance articles will bring the latte saving tip up.
The math is simple: if you stop “wasting” money on small things (as a daily latte), you’ll save up a shit ton of money by the time you’re 65.
And before I make my point here, I want to share a joke first.
Two friends, a smoker and non-smoker meet and get to chit chat. The non-smoker tells his friend ‘You know how much money you waste on cigarettes?! If you’d quit smoking you could save enough to buy a Lamborghini.’ The smoker looks at his friends and asks: ‘Do you smoke?’ ‘No’ says the non-smoker. ‘Then where is your Lamborghini?’
I personally find it useless to tell me to cut some expenses “because I’ll save so much money”.
I need specific steps: for every latte you don’t buy, put aside those $5 in an investment/savings account. But do this every single time you don’t buy that thing. Otherwise you’ll spend it on something else.
Every time you don’t buy a latte, put the equivalent money right away in a savings account. Otherwise, you’ll spend it on something else.
Most of us don’t have a solid financial education. We need actual advice in full, not just a nice story “to imagine”.

A good chunk of the “personal finance 101” articles will tell you to cut the lattes and save or invest the money. But we’re not used to investing money, we need further guidance for that too.
If it Brings Joy, Don’t Give it up
Buying coffee from the same spot every single morning, can be very therapeutic and a ritual in its own way.
And this comes from someone who’s not a coffee drinker at all.
If you have a ritual set in place that brings you joy, buy that f-ing latte every single day. You won’t end up living on the streets because you bought a latte every single day to 40 years.
So, before you do a happy dance for the $5 you saved, but still thinking about that latte you missed, know this:
- buying a coffee every morning can be a morning ritual that grounds you
- you’re actually supporting a business (better go local – it’s also cheaper)
- if it’s a point of socialising for you, don’t give it up
- if it brings joy, don’t give it up
- you can find other places to cut expenses
Of course, if you find more joy in making your own coffee, at home, by all means – crack on. I’m just sick and tired of seeing this idea that not buying a poor cup of coffee will make you rich by 65.
Bottom Line
I don’t want you to use this as an excuse to spend $10-15 daily on coffee, simply because “it brings you joy”.
Take a moment and be honest with yourself: are you doing it because it truly brings you some sort of joy or because others do it and it’s a “trend”?
You can find other ways to cut minor expenses and invest some extra money. I’m not saying the latte effect is not a good example of how you can cut some expenses, but that’s it: just an example.
I just want to clarify that not buying a coffee every single day is not the standard, and you shouldn’t feel pressured to cut on something you truly enjoy.
Are you experiencing the latte effect?
3 comments
Yes to this post! I hate when someone equates buying a latte to financial health. I certainly understand the importance of budgeting and spending wisely, but I also want my latte. Lol. I do think it’s important to know where to put the saved money.
I LOVE this post! Now, I am not a coffee drinker or a smoker, or someone who has any kind of weekly routine like this, but I really like this post! I’ve never thought of it like this. It’s SUCH a good point that simply *not* spending the money doesn’t mean that you’re going to save it – but I have always been an advocate for doing things that bring you joy, and I’m glad that other people are supporting that too.
A few times a month I will get a nice baked good (I’m a sucker for a pastry!), and since we’ve been in lockdown in my state, we have ordered in for dinner a few times since we can’t just run down to the supermarket when we realise we don’t have something we need, and we’re not going to let ourselves feel bad about those things because they either bring us joy or they’re necessities. I’m really glad I found this post! Thank you for writing it 😊
Happy I found another like-minded person! <3