Weighing up your spending isn’t simple: should you invest in making your future better or enjoying life right now?
Back in the 1990s, the American personal finance guru David Bach coined the term “the Latte Factor” (these days, it’s a registered trademark) and a money myth was born. You could retire a millionaire, Bach promised, just by forgoing your daily trip to Starbucks and investing the money instead!
The only problem is, you can’t. In her 2012 book Pound Foolish, Helaine Olen points out that Bach assumed a 365-day-a-year latte habit; added a daily biscotti to increase the cost; rounded up the annual total by a three-figure sum; assumed improbably high investment returns; and ignored inflation and taxes. But the Latte Factor ticked so many boxes, it didn’t seem to matter that these didn’t include the one marked “accurate”. It distracted from systemic problems, made financial security look like a simple matter of self-discipline, and implied that you could get there without sacrificing anything that mattered.
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