It seems that every week some personal finance writer or speaker explains that we could all get out of debt if we just stopped buying $5 lattes every day. If I hear that one more time, I will scream.

Why have all of these advisers fixated on the latte factor? While it’s true that buying a $5 latte every weekday for a year will cost you $1300, the average person has much more than $1300 in debt. I do realize that they’re trying to tell us to cut unnecessary daily expenses that add up over time, but at this point the latte factor has become such a standard claim that no one bothers to listen anymore.

True personal finance advice shouldn’t rely on tired clichés that everyone is using. If it were really as simple as drinking the free office coffee, no one would be in debt anymore. I don’t even drink coffee, so how on earth did I wind up in debt? Surely it can’t be that advanced degree I got? Could it be the wedding trip I had to take last year? No, it must be the lattes. That’s clearly the problem.

Getting out of debt requires more than simple cuts. It involves changing your attitudes about money, changing your lifestyle, and cutting many expenses so you’re living within your means again. Trimming that $5 a day is a good start, but it won’t solve the problem unless you’re exactly $1300 in debt due to your addiction to drinking high-calorie frothy beverages five days a week for the last year.

Real Debt Reduction Techniques
If you aren’t a big fan of lattes (like me), you may still have a few wasteful spending areas. Combine spending reductions with other tried-and-true debt reduction methods if you really and truly want to get out of debt.

Step 1: Go through all of your monthly spending – write it all down for a month – to see where your bugaboos are. It might really be a latte, but it could also be trips to the vending machine, your unused gym membership, or even library late fees. Cut several wasteful spending habits to produce real savings.

Step 2: List all your debts, and make a plan for paying them off. Set goals with realistic but challenging dates. In other words, plan to pay off $10,000 in a year, not in two months (unless you know you’ve got a big chunk of money coming.) The realistic date will provide motivation to avoid spending. Without a goal, it’s easy to say, “Well, buying this Coke won’t delay my debt too much, I’ll still pay it off eventually.” If you have a debt-payoff date in your mind, you know much all those little purchases will delay you.

If it helps, you can tell yourself that you can resume your normal spending once you’re out of debt. Here’s the secret they don’t tell you: once you pay off the debt, you probably won’t want to resume your old spending habits. Saving money feels good.

Step 3: Learn to be frugal in other areas, too. With the cost of food rising, groceries are big place where cutting spending is important. Eat more whole foods and fewer convenience foods. Shop at farmer’s markets, use coupons, and shop the weekly grocery flyer. Plan your meals in advance. Chances are that you’re wasting money if you buy groceries every day. You may forget that you already have food in the fridge and buy a duplicate item. Or you might forget to use something up before it goes bad.

Step 4: Change your attitude about money. This will happen over time as you pay off debt, learn to control spending, and learn to be more frugal. You’ll come to recognize money as a powerful, yet limited, resource that can help you reach your goals, not an endless spigot that you can fritter away at will. It’s not proof of your value as a person and spending it doesn’t make you into a better person or a better friend.

The latte factor certainly does apply to some people, but other people may hear that advice and dismiss it because they don’t buy lattes. If you’re that person, take a hard look at your finances and make a commitment to plugging the holes wherever they are.

Comments

11 Responses to “Debunking the “Latte Factor””

  1. Jeff Clair on May 28th, 2008 2:52 pm

    Great post Aryn!

    I agree with you that we have to change our attitude if we would like to get out of debt as soon as possible by changing few things in our lifestyle and cut short our unnecessary expenses. Thanks for sharing.

    Jeff Clair

  2. Sara on May 28th, 2008 8:06 pm

    I think the latter factor has become so popular because it’s a tangible first step for people just starting to turn their financial situation around. It’s a way to start feeling in control and seeing real money add up. After they’ve got that motivation and first success, people can move on to your steps with more confidence. Of course, I understand how you’d be tired of hearing about it, since too many articles take it so literally…

  3. Aryn on May 29th, 2008 11:55 am

    Exactly, Sara, it works for some people, so now it’s become a cliche that sounds like a quick fix for everyone. I worry that non-coffee drinkers will not hear the advice beneath the cliche.

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  5. Beyond Paycheck to Paycheck on June 2nd, 2008 7:38 am

    Major on the major, minor on the minor. Cutting lattes will help, but only $5 at a time. Negotiate a better apartment lease, keeping your car an extra year or researching realistic mortgage options are ways to live the same life and to save hundreds or thousands at a time.

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  7. The Happy Rock on June 3rd, 2008 9:39 am

    I agree that it is tangible, but I think it detracts people from asking themselves the real questions that will change their money situations.

    What got you into debt, what behaviors need to change, why do I want to get out of debt, what’s my plan are all harder do than the latte factor but will provide way more results especially in the long run.

  8. Matt on June 8th, 2008 9:01 am

    I really enjoyed this post. I have say that I agree with you completely. For me the Latte factor was a means to change my outlook on money. I know that everyone spouts about the latte factor now but the reality is that if you’re spending $5 or $10 a day on unnecessary spending then you’re not helping yourself.

    I did have a comment about your grocery shopping comment – we shop pretty much daily for our groceries and I believe in our case it saves us money. We don’t plan means ahead and whenever we’ve tried we just end up throwing out food. I know that this is a matter of getting into the habit of doing this but for us we waste food and money when we try to shop weekly. It does help that we have a grocery store across the street and we only buy the necessary items (rather than all sorts of extra stuff).

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  11. KvH on January 4th, 2010 5:42 pm

    Thank you for writing this! But I’m sick of the latte factor for another reason — it does nothing to help those of us who are so broke that we wouldn’t dream of spending $5 at Starbucks. I’ve spent the last year helping various family members deal with medical crises, so I’ve had to cut my freelance work hours way back; I’m making ends meet, barely, but I’m determined to get out of debt and save for the future. Nattering about lattes just sounds like taunting to people who never waste money on coffee out. Advice about identifying entirely different wasteful habits is much more helpful.

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