☕ Lattes & avocado toast: An actual concern?

If you somehow have managed to consume personal finance content without ever hearing about the latte factor or avocado toast, then wow, I’m deeply impressed. The latte factor was popularized by personal finance writer David Bach who argues that unconscious spending on small purchases (like a latte) can end up costing you a huge sum in the long run. Later on, an Australian millionaire and real estate mogul made a comment to the press about millennials being unable to buy a home because they wasted money on avocado toast, that’s how a delicious but overpriced, brunch item ended up being a symbol of a generation.

Bach’s original point with the latte factor is that the “huge sum” you’re blowing is about the upside if you invested that money instead.

Let’s say you spend $6 a day on a latte and do that five days a week. That’s going to be $30 a week, which is $120 a month. But what if you invested that $120 a month and did that monthly for 30 years and got a 7% return on your investment?! You’d have over $136,000! Just spending $120 a month for 30 years would be $43,200 in lattes.

The crux of the argument is the modernization of a quote often attributed to Benjamin Franklin: “Beware of little expenses. A small leak will sink a great ship.”

Here’s the bad news: It’s not wrong.

Here’s the good news….

Read the rest on my Substack.

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