The Financial Reality Behind the Infamous Latte Factor (2023)


The humble latte has been at the center of a contentious financial debate for years. On one side, you have financial guru David Bach and his followers who vilify this cup of Joe as the reason you’re broke and in debt.

On the other side, you have caffeine lovers who dispute how much power a latte has over your financial well-being.

Who’s right and who’s wrong in this argument? It might come as a surprise that everyone is.

Or nobody, depending on how you look at it. While there are problems with this concept, it’s based on some financial truths. Let’s dig into the matter to learn more.

Who is David Bach and What is the Latte Factor?

David Bach Latte Factor

David Bach is a popular financial advisor and 10-time New York bestselling author who you might’ve seen on The Oprah Winfrey Show, The Today Show, and Larry King Live. He’s best known as the creator of the Latte Factor, which was the first time this caffeinated treat came to be on the hot seat.

The Latte Factor is Bach’s founding financial principle that exposes just how much a daily latte costs you over time. Although each grande non-fat latte with vanilla may only be a handful of dollars, he’s more concerned about their cumulative cost. Each cup adds up until you wind up spending a lot of money on your caffeine habit.

Bach warns that coffee splurges are why so many people don’t have savings. In the U.S., 22% of people have zero emergency savings, while 26% of Canadians can’t come up with $500 in an emergency.

Without savings, you and other savings-free people might have to rely on help from an online lender like Fora if an unexpected expense comes along. You can visit to learn more about how online loans fit into your budget.

These online loans make it easy to apply for help in emergencies with simple and quick online applications. If approved, you can use a line of credit until you build up your savings as the primary defence against the unexpected.

According to Bach, a daily latte drinker could save $2,000 in an emergency fund in just one year by ditching their Starbucks addiction and switching to homebrew. More importantly, he tells his fans that this $2,000 can help build a $1-million retirement fund if invested correctly with an 11% return.

Criticisms of the Latte Factor

Criticisms of the Latte Factor

Does the thought of a latte transforming into your retirement nest egg twinge your financial Spidey senses? You wouldn’t be the only one to find problems with Bach’s claims. Here are three of the biggest criticisms below:

The Math is Faulty

Bach’s back-of-the-envelope calculations rely on a few assumptions.

  1. You buy a latte every day of the year.
  2. That latte costs $5 every time.
  3. Your daily habit rings up to a $2,000 bill each year.

The problem? Most people can’t afford to swing by Starbucks every day. Even if they did, they are probably spending more than $5 these days to get a medium-sized cup, thanks to inflation.

But, let’s for the sake of argument say, they are spending $5 every time — 365 days of this expense would equal a grand total of $1,825. While this may seem like splitting hairs, accuracy is important when talking about money.

It’s Unrealistic

Perhaps the biggest criticism has to do with Bach’s claim you can nab an investment offering an 11% return. Helaine Olen, author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, said Bach’s calculations have no basis in reality.

According to her research, it’s unlikely someone can find an account offering an 11% return consistently and that still holds true today.

Is the Latte Factor All Nonsense?

Coffee Machine dispensing coffee into a cup. Depiction of the Latte Factor.

While the Latte Factor has some obvious problems, it stems from one key misunderstanding of Bach’s teachings.

The book fiercely targets the latte as a prime example of wasted money. However, it isn’t the only thing in his crosshairs. Bach uses the latte as a metaphor for all the little ways you spend your money on unnecessary things without really thinking about them.

It was never just about the latte. In reality, his work underscores the purchasing power of all the little things in your budget — from a thoughtless can of pop when you fill up at the pumps to throwing in a load of laundry on a hot water cycle at peak rate times. While these decisions may seem inconsequential at first, together, they are mighty.

He isn’t the only financial advisor or institution to tell people to sweat the small things. An online lender like Fora warns borrowers against splurging on too many frivolities, and they share many financial resources to help them budget better.

How to Look out for the Small Things in Your Budget

So, you don’t buy a latte every day, but you can appreciate how the small things add up. What are the small things you’re wasting your money on? The trick here is to think about small purchases that you make often, as the power of compounding costs are your worst enemy.

While everyone spends their money differently, the list below can help you get started:

  • Frequent trips to the ATM to make withdrawals.
  • Adding splurge items to your shopping trip at the till — items placed by the cash registers are designed to make you spend more.
  • Shopping at bulk food stores and never finishing the extra servings before they expire.
  • Paying for late fines on forgotten bills — automate them instead!
  • Making the minimum payment on lines of credit when you can afford to pay the full bill.
  • Shopping without discounts, coupons, or cashback apps.
  • Neglecting to set up a budget that identifies your financial goals.
  • Subscribing to multiple streaming services that have overlapping content.
  • Paying premium prices for a limitless data plan on your phone and Internet.
  • Using high-energy appliances during peak hours.
  • Not thinking about energy consumption at all.
  • Eating takeout more often than a “once-in-a-while” splurge.
  • Signing up for meal-in-a-box subscriptions.

The Takeaway: A Latte isn’t Black and White


While a single latte isn’t going to make or break your budget, the habit of spending your money without intention could. The Latte Factor teaches you to recognize spending habits that may be standing in the way of your financial goals.

Keep this in mind the next time you evaluate your budget. You don’t have to give up drinking takeout lattes for the rest of your life as long you prioritize your financial essentials first.