I have to admit, I’ve become addicted to reading Personal Finance blogs and articles. I’ve always had an interest in being financially responsible and trying to get ahead. But I’d always been told that the only way to really get ahead was to work yourself to the bone, and sacrifice until it hurts. At 23, my Financial Advisor actually told me to live in a cardboard box if that’s what it took to save everything. And honestly, I’m not sure that he wasn’t serious.
So it amazes me now to find so many people with such dramatically different approaches to money, from Mr. Money Mustache, to Jacob at ERE, to Ramit Sethi at I Will Teach You To Be Rich,blogging about how they managed to become Financially Independent. As it turns out, managing your money doesn’t have to be a one-size-fits-all thing!
Which brings me to the hot topic of the last few years: The Latte Factor. The Latte Factor has been covered extensively in the Personal Finance world and, like most things involving money, people have very different feelings about it.
The Latte Factor suggests that it’s the small, everyday things that can sink a budget, like a daily latte. It seems innocent enough; Less than $5 a day for a cup of warm goodness (In my case it’s The White Chocolate Mocha Factor). Do this every day for a year, and you’re looking at $1,825. Ouch! Invest that money in stocks, and over time you’re looking at 10’s of thousands of dollars lost in those cute disposable cups. Yikes!
Or maybe it’s not the lattes (or manicures, or massages, or whatever your “Latte” may be) that derail people financially. The opposite financial position is that it’s the big things; the house, the car(s), the private schools, that are derailing your finances. You could be saving thousands of dollars a year if you looked at the items that take up most of your income and cut them back. Buy a less expensive car, or pay cash for a used car. Downsize your house or apartment. It’s the little treats (lattes) that keep you going, rewarding you for your efforts. So cut back on the big things that will give you more bang for your buck!
My thoughts? I don’t think a latte here and there is going to keep you from getting ahead financially. Lots of financially responsible people even include their daily latte as part of the budget, like Mr. and Mrs. Pop over at Planting Our Pennies. There’s nothing wrong with spending your hard-earned cash on things that bring you joy. It’s not the “Latte Factor” that causes the problem. It’s the “Latte Mentality”.
The Latte Mentality
I must admit, I suffered from the Latte Mentality for most of my adult life. Most people I know thought of me as extremely money savvy. I didn’t buy a lot of clothes or expensive things. On big purchases I always bought quality items. I went without things for long periods of time, saving money and ensuring I was making the right choices. Heck, I went without a couch for 18 months! I had the money, and I’d sold the old one thinking that would spur me into making a purchase. But I couldn’t see parting with that kind of money unless I was 100% sure. But the Latte Mentality was always my downfall.
Big purchases required lots of consideration. But I slowly began to realize that purchases under $10 never even registered in my mind. “It’s only $5!” I would think, throwing item after item into my shopping cart. The newest hair care/skin care/body product; That DVD on sale; Organic foods and high-end ingredients. I found myself regularly shelling out $200 a week on my “grocery shopping” at Target, always wondering “What exactly did I buy that cost so much?” It was the Latte Mentality that was derailing my finances; the idea of pampering myself with little purchases, without ever considering how those “little purchases” were adding up into big amounts.
Despite a kitchen full of food, I’d find myself stopping at Starbucks every morning for breakfast, which later turned into McDonald’s (hey, Starbucks took 10-15 extra minutes! This girl needs her sleep!). Morning after morning. Lunches at whatever fast food restaurant sounded good. Dinner, well… hey, I was busy! And it’s hard to cook for one! Week after week, buying food I’d never eat at home, endless meals in my car, and ridiculous amounts of waste. Always with the thought of “Next week, I’ll do better!”
The physical waste was enormous, between the food that went into the garbage, the wrappers, the products that ended up being thrown away, the DVDs that I ended up hating. And the financial waste? Well, assuming I was spending about $15 a day on restaurant food, and about $200 a week at Target (sometimes more on one and less on the other, but it averages about the same) I figure I was spending in the ballpark of $15, 860 a year. Or about 38% of my annual salary.
Admittedly, some of this spending was still necessary. I mean, a girl’s still got to eat, right? And (hopefully) bathe! So to see where the extra is, we’ll compare it to what I’m spending now. Now days I give myself $100 a week in “spending” money. This includes groceries, health and beauty, household cleaning items, and “fun” money. Most weeks I’ll spend $20-50 dollars at the grocery, giving me some extra money to spend on “wants”. In addition to this money, there’s about $30 extra a week put into a checking account for small emergencies or little things that come up from time to time. Not my emergency fund, just more of a “cushion”. Total it equals out to about $6,760 a year.
If you do the math, that’s just over $9,000 a year I’d been wasting, on little $5-10 items. That couch I was so worried about? I could have replaced it every year for what I was wasting! The washer and dryer that I’ve hated since the day they were delivered? That I never could find the money to replace? I could have replaced them without a second thought.
So what changed in my “Latte Mentality”? I began seeing more and more people writing about spending on what you value. And I began to think about where my money was going. Did I really value all that fast food? All the new beauty products? Honestly, no. Granted, I do love food. Even fast food. And I still stop somewhere from time to time when I’m really craving something. Or when I’m spending time with friends. But on a day-to-day basis? It had gotten to the point where most days I couldn’t even decide where to go to eat. I was sick of everything, but I was hungry and unprepared. So now, I brown bag my lunch, and eat more at home. Do I feel deprived? No. I have room in my budget that if I WANT something, I can have it.
The problem I see with the Latte Factor is that it makes financially responsible people feel like they’re being attacked for spending money on things that they enjoy. And really, isn’t that the reason we’re all saving money? So we can spend on the things we value/enjoy? If you truly enjoy what you’re purchasing, and you can afford it, then there isn’t an issue. Even if it’s an everyday expense. And even if other people think you could be spending more productively.
The Latte Mentality is when you stop thinking about your spending. When you go into automatic, and everything becomes an everyday “latte”. You’re no longer spending money on things you value or enjoy. You’re simple spending money out of habit, or routine. Or because you think it will somehow make your life easier, or add to your happiness. The extra money you’re spending doesn’t add to your happiness; Sometimes it even takes away from it. And yet you keep spending money, hoping those little purchases will somehow lead to a better life. You continue to look at them as “just little purchases”, because you never look at your spending as a whole.
There may always be “lattes” to factor into my financial picture. But I’m hopeful that I will never again succumb to the Latte Mentality. Because I want to enjoy every White Chocolate Mocha. And the extra $9,000 a year!
– Ms. W