Money Crashers: Latte Factor

My latest Money Crashers article takes on one of the great myths of personal finance: the Latte Factor. This phrase, coined by financial guru David Bach, signifies the idea that the key to financial independence is to cut out small, unnecessary expenses and steer that money into investments instead. And you must admit, as a sound bite, it's sheer genius. It's easy to grasp, and it's such a comforting idea — that the only thing standing between you and retiring rich is something so trivial as a latte. All you have to do is cut out coffee, and you've got it made! What could be easier?

In fact, there's only one thing wrong with the Latte Factor: it is, to borrow a phrase from "The Good Place," bullshirt.

In the article, I explain exactly why Bach's calculations don't work, and why they trivialize the problems that are really holding people's finances back — much more complex problems like overpriced real estate, skyrocketing health care costs, and punishing student loan debt. Then I go on to outline some approaches that actually can help you solve these problems, such as rethinking housing, refinancing debt, maximizing your income, and boosting your investment returns.

Spoiler alert: These fixes are nowhere near as simple as giving up a daily latte. But they're a lot more likely to work.

Latte Factor – Giving Up Lattes Won’t Make You Rich But Here’s What Will