The Latte Effect

When it comes to being financially responsible, nothing gets demonized like a latte.

The infamous example of the “latte getting in the way of your savings goals” has been overused for years, with financial experts shaking their fingers (mostly at millennials) for buying coffee. The point: People shouldn’t waste their money on something so indulgent when they could put it toward something that really matters, like saving for retirement.


Don’t get me wrong, the financial experts do have a point. We all can become victims of spending on little things in our life — whether that be grabbing lunch out instead of bringing it from home, buying produce that we let rot in the fridge, or incurring fees for paying bills late — without acknowledging the real expense of these little costs.


However, to me, the biggest issue with this example is that it ASSUMES that lattes shouldn’t be something you value! It implies that a latte is an incredibly frivolous purchase that could easily be sacrificed. While that may be true for some, it’s certainly not true for everyone. For example, whenever this example is brought up, I can’t help but think of my mother-in-law. She rarely ever spends money on herself … except for her cup of coffee from Starbucks each day. She loves interacting with the baristas who have her order ready as soon as she walks in the door. It is her one treat and it brings her a deep sense of joy. There should be no reason for her to feel guilty about it.


I also take issue with the implication that if you’re buying lattes, you are not paying attention to your savings goals. It’s as if you don’t deserve to spend any money on yourself today because you haven’t taken care of yourself tomorrow. But just because the American public (as a whole) is woefully unprepared for retirement, that doesn’t mean that you are. [By the way, if you’re wondering if you’re on track, stay tuned … next week I’ll discuss how you can find out if you are prepared for retirement.]


Finally, I’ve seen this example is used in incredibly hypocritical ways. Some people love to make others feel guilty for the ways they perceive they’re overspending, without taking into account the foolish financial decisions they are making in their own lives. In fact, I’ve seen someone use this example who had a Starbucks cup in their hand at the time! Always take a step back to evaluate the person giving you financial guidance: Are they practicing what they preach? What is their motive?


There’s a long-held misconception that to be financially well you have to give up all of the things that you enjoy. So not true! It’s actually about trimming those ways you are using your money that aren’t bringing you any value. Values-based spending is an important part of any budget — spending is not the enemy of saving.


So, should you buy the latte or not? Here are some questions to ask yourself to help you figure out the answer:


1.     Is a latte something I value?

a.     No: If it doesn’t really bring you joy, then don’t spend money on it. Just because it’s relatively inexpensive  doesn’t mean it’s worth it. If it’s not something you really value, this might be an opportunity to heed the advice of “the latte effect” and put your dollars toward something more important.

b.    Yes: Over the last few months, my husband and I have gotten into the habit of going to a coffee shop every Sunday afternoon to work on our entrepreneurial ventures. We both get a drink and we stay for a few hours enjoying working in a new and exciting space. While we could cut it from our budget if we needed to, we have made room for it in our spending because it’s become deeply meaningful for us both.


2.     If it is something you value, can you afford it?

a.     No: While $3.50 may not seem like much, over the course of a year (not to mention 30 years) it really adds up. If you’re not on track for today or tomorrow’s goals, then they should be your first priority. Still, once you have those steps in order, you might be able to swing an occasional latte. Ask yourself: Are there places in your budget where you can cut something you value less in order to make your goals and your latte happen? Could you cut your lattes down to once a week or even once a month and make them a special treat?

b.    Yes: Then, my friend, as Sallie Krawchek said, drink the f***ing latte and don’t you dare let anyone make you feel guilty about it.


I realize you may be thinking: “Grace, I don’t like lattes so I certainly don’t spend money on them!” I feel you — lattes actually aren’t my jam either. But you can probably fill in the blank with something you do spend money on a regular basis, like going out for drink after work or paying for a subscription service. (For me, it’s always been baked goods. Working close to some of the best bakeries in the city is a very dangerous thing for me!) The point is, it’s easy to let those little expenses creep up on you. But when you find a way to budget for those things you value, it makes enjoying them that much sweeter.

This Thursday, Sept. 12, I’ll be sharing a video on Instagram and Facebook at 8pm Central talking more about the little expenses in our budget that can creep up on us — and how to know what to keep and what to ditch.

ATTENTION TWIN CITIES READERS: I’m hosting my first Love & Money workshop on Oct. 19 from 9am-noon. During this event, I’ll help you break the ice, talk honestly about money with your partner, and find your money superpower together. You'll leave with a better understanding of your money personality and your partner's as well as how you can use your individual money strengths to create a fulfilling life together. Can’t wait to see you there!