Assessing the “Latte Factor”

A couple of years ago, David Bach, with John David Mann, published the book The Latte Factor. I haven’t read the book, so this is not a review. But looking at the table of contents, it appears that the book is not simply about investing the amount you would save by not buying a latte each day.


I have heard people complain about this book, pointing out that most households’ financial difficulties are much more significant than the cost of a daily latte, or more recently, avocado toast. Most prominent these days is the cost of housing, at least in and around the real estate hot spots of Toronto and Vancouver.


Still, the idea of forgoing the daily purchase of a hot beverage intrigues me. I wonder how much of a difference it could make.


How much is a latte, anyway?

To my knowledge, I’ve never had a latte. I am not a frequent consumer of coffee in any form, except for the occasional cup of instant coffee at home. Sometimes I will get a cup of coffee when I need to quell a headache and the acetaminophen isn’t doing the job alone. Caffeine makes a difference. This is all to say that I’m not sure what a latte costs in real life.


I went to the Starbucks Canada website to see what I could find, but I was so confused by the options that I didn’t know how to proceed. Fortunately, I found a website, Cost Finder Canada, that tells me that Starbucks sells a Caffe Latte Tall for $2.95, a Caffe Latte Grande for $3.65, and a Caffe Latte Venti for $4.15. For this little experiment, I am going to use a cost of $4.00.


Factors to consider

I will need to make some assumptions for this assessment. Let’s assume that one Latte is bought every day of the year. To make life simple, I will assume one year is equal to twelve 30-day months, so there are five days (or six in a leap year) when a latte is not purchased). Let’s assume that the money saved is put into a separate account and that at the end of the month, the accumulated amount is invested in a TFSA. We will ignore inflation and trading costs. It is invested in a balanced portfolio, returning a consistent 5% annual return. Finally, let’s assume this experiment goes on for 20 years.



What happens after you’ve invested $120 a month for 20 years? Here are the results:



In a nutshell, by giving up your daily $4.00 latte, you end up with close to an extra $50,000 in assets. You may also notice the impact of compounding over time. In the first few years, the difference between the amount you invest and your year-end value is minimal. In Year 6, however, the difference exceeds $1,000. In year 10, the difference is greater than $4,000. And, by the end of your 20-year experiment, the difference is greater than $20,000.


Do I have to skip my latte … or avocado toast?

The point of this analysis is not to push you toward an undesired level of frugality, giving up coffee or a particular snack. If you like a certain daily beverage, go for it. However, I think we can see that even insignificant amounts of daily savings can make a meaningful difference over an extended period. Enjoy your latte, but perhaps you can enjoy your savings, too.


This is the 127th blog post for Russ Writes.


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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.


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