Why I Respect BUT Dislike the Latte Factor

Why I Respect BUT Dislike the Latte Factor

Earlier this year CNBC published an article titled, Suze Orman: If you waste money on coffee, it’s like ‘peeing $1 million down the drain’

Here is a quick excerpt from the article:

“Let’s say you spend around $100 on coffee each month. If you were to put that $100 into a Roth IRA instead, after 40 years the money would have grown to around $1 million with a 12 percent rate of return. Even with a seven percent rate of return, you’d still have around $250,000.”

“You need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee,” Orman says. “Do you really want to do that? No.”

What Suze Orman is referencing here is known as the ‘Latte Factor’ made famous by New York Times bestselling author David Bach.

Being cognizant of the small purchases in life and how they can lead to wasting substantial sums of money is IMPORTANT. Especially for someone just starting their personal finance journey and looking to build a solid foundation. However, to achieve meaningful wealth I don’t believe the “latte factor” is ultimately going to move the needle (unfortunately).

The major purchases in life such as a car, home, and education have opportunity costs that are worth a lifetime of latte purchases. So while I respect the principles of the latte factor, I don’t like the hyperbolic examples used by personal finance ‘gurus’ to draw attention to unrealistic examples.

More specifically, I REALLY don’t like the example used by Suze Orman in this article. A 12% annualized return is well above the long term average for US stocks and would be extremely unlikely to be achieved even by professional money managers. As you can see, the rate of return (over a 40 year time period) has a MASSIVE impact on the ending dollar amount.

The ending dollar value also doesn’t account for inflation! When you use realistic numbers that account for REAL returns after inflation, this example quickly loses its ‘clickbait’ appeal.

If foregoing coffee purchases aren’t going to move the needle, what will? 

Again, assuming you are aware of and respect the latte factor, here are some things that have an opportunity cost that surpasses a LIFETIME worth of latte purchases:

  • Failing to plan for tax efficiency within your income and investments
  • Not maximizing lucrative employer stock compensation (such as options and purchase plans)
  • Failing to take advantage of 401(k) matches
  • For business owners – failing to reduce taxable income via retirement plans and available deductions
  • Overextending yourself on a home (residence) and/or viewing it primarily as an investment
  • Taking out student loans for education without a reasonable return on investment
  • Not discussing finances with your partner, which can ultimately lead to divorce

To really benefit from compounding interest with REALISTIC rates of return it requires a high savings rate. The ‘easiest way’ to achieve a high savings rate is by increasing your income. Foregoing the $5 latte will give you a great foundation, but will not ultimately move the needle (like increasing income will).

Don’t ever sell yourself short! Your earning potential is usually much higher than you think. Be cognizant of the small purchases but focus on getting the big-ticket decisions right.

Tune in to the DO MORE WITH YOUR MONEY podcast below to get my complete thoughts!

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Jeff Bezos in 1999 on the Importance of Diversification

Jeff Bezos in 1999 on the Importance of Diversification

There are no guarantees. There is always uncertainty.

Even when you have an unbelievable vision.

I love this clip of Jeff Bezos (scroll down). It shows his foresight about the future of retail and customer service. What stood out to me was his humility to recognize the uncertainty of who the expected winners of the ‘internet revolution’ would be.

“Long term I believe that it is very easy to predict that there are going to be lots of successful companies born of the internet. I also believe that today, where we sit, it’s very hard to predict who those companies are going to be.”

In hindsight, it’s easy to look back at Jeff Bezos and his vision to ‘know’ that Amazon would be a massive success. Even Jeff Bezos recognized the uncertainty he faced along the way.

For long term investors, it’s not about predicting the exact winners, it’s about making sure you have exposure to those winners.

As long as you’re saving enough on an ongoing basis, a long term investor can afford to own companies that will not be winners to the magnitude of Amazon.

What the long term investor cannot afford, is completely missing ‘the next Amazon’ altogether. The best way to do that is through diversification.

“Young, Successful…and Drowning in Debt”

“Young, Successful…and Drowning in Debt”

“On the surface, plenty of Boston millennials are earning, spending, and having a blast. But beneath the veneer of $17 margaritas and shopping trips around the Seaport, many are living with debt – and lots of it. Is buying the good life on loan the new normal? Or is it plunging a generation into an early midlife crisis?”

A friend recently sent me over this clip from Boston Magazine, which obviously resonated with me!

Here are my takeaways:

There’s no question many young professionals are living beyond their means. To act like this is something new, however, would be extremely hypocritical since most of our older generations are ALSO woefully unprepared for financial independence (retirement). Young people living for today and not worrying about the future (shocker).

There’s also no question that Instagram culture is influencing our ‘keeping up with the Joneses mentality’. It’s HARD to forgo indulging when you are constantly bombarded with pictures and videos of your peers ‘having the time of their lives’. But, like most things in life and personal finance – there is a balance!

Should a young person not be allowed to go out to dinner with friends because they have student loans? Should every last dollar of disposable income be put towards debt repayment or growing your net worth? If you have that level of discipline and want to sacrifice to get ahead, I applaud you. I’m more in the camp of living for today while still planning for tomorrow. As long as you have an adequate savings rate (which includes debt repayment) and are not leaving free money on the table via lucrative employer benefits (such as equity compensation, employer matches, etc.), I see nothing wrong with ALSO enjoying yourself in the present.

One thing I will suggest and strongly advocate for is making tradeoffs when it comes to location and where you live. You don’t have to live in the Seaport to experience the Seaport. What’s the point of living in the Seaport to pay $2,500 for a studio apartment when that leaves you no disposable income for the experiences you REALLY enjoy ( going out to dinner with friends, etc.).

I always advocate friends, family, clients, etc. to think hard where their money is used to derive happiness. I’ve found for most, it’s the ability to have the flexibility to share experiences with others. Think about what tradeoffs you can make to give yourself that flexibility.

Lastly, let’s all agree to not let flexing on the gram influence OUR spending decisions. Personal finance decisions are PERSONAL, we don’t know someone else’s balance sheet and cash flow, so it’s best to focus on our own.

Organize, Track, and Pay Yourself

Organize, Track, and Pay Yourself

Organizing your finances is hard enough. When you’re a small business owner it can be even more complicated since you also have to account for the cash flows of your business.

Simplifying, organizing, and tracking your business cash flow is essential so you can pay yourself for your hard work. Assuming you don’t need to reinvest in your business, you should be paying yourself to supplement your lifestyle, and invest for financial freedom outside of your business.

Separating Personal and Business Expenses

Do you have an established business entity such as an LLC, Partnership, or S-Corp? If so, you should at a minimum have a separate business checking and business credit card. This will make it easy for keeping personal and business transactions separate and will also help to build business credit.

If you don’t have an established business entity for liability purposes, it’s still important to have a way of tracking business expenses. Using something like QuickBooks Self-Employed can allow you to easily build out rules for classifying business versus personal transactions, even if they’re both on a personal credit card or checking account.

Why You Need to Track Business Cash Flow

Assuming your business is your primary source of income, you need to be able to pay yourself so you can live the way you want to AND invest for YOUR financial freedom. Your business may or may not have a market value if you were to sell. Either way, relying on potential equity from the sale of your business should not be the foundation of your financial plan.

As important as paying yourself is paying the IRS. Again, using something like QuickBooks Self-Employed makes it easy for projecting quarterly estimated tax payments. You want to make sure you’re on top of this as you could face potential penalties for underpayment.

Your Business and Personal Financial Health are Connected

The financial health of your business will ultimately determine the health of your finances. Make sure you’re extracting your fair share from your business and paying yourself enough to build something outside of your business.


The Best Investment Strategy

The Best Investment Strategy

Everyone wants to get rich.

No wait, let me rephrase that. Everyone wants to get rich quickly!

Unfortunately, this is not how investing in financial markets work, especially for main street investors like me and you.

So what is the best investment strategy? The truth is MANY strategies can provide success. However, what is the one constant across every strategy?


The best investment strategy is the one you stick with. As soon as you start deviating from your chosen strategy you lower your odds of success.

This is because investing is HARD. Once you start to deviate from the strategy, you’re opening the door for human emotion to dictate money decisions.

Human emotions do not mix well with logic and reason, especially during inevitable times of panic of euphoria. Determining an investment strategy EARLY on that you can stick with is powerful as your wealth grows.

Even for the young investor, practicing some level of diversification can help create the mindset required to hold onto wealth. Being comfortable with “investing FOMO” — blocking out the noise of what your peers are claiming “their returns” are is essential to maintaining discipline.

At the end of the day, what are we trying to accomplish as investors? We are trying to provide ourselves the flexibility to live our lives the way we want and take care of the people we care about.

With the right planning, practicing an investment strategy that we can stick with will put the odds in our favor.

“The longer you stay disciplined and in the game — the higher your probability of success.”