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Ah, January. The time for diets, purges and cutting down on spending. Also, the perfect time to share my grand theory about lattes in personal finance.
Elaborate coffee drinks owe their role as the epitome of mindless spending to David Bach’s 2019 bestseller The Latte Factor. Granted, that general idea has drawn plenty of eye rolls for legitimate reasons. Let me be clear: Too many lattes – or avocado toasts, for that matter – are not why young people can’t afford to buy a home.
But at its core, Mr. Bach’s point is uncontroversial and unassailable: Small, frequent, mindless expenses are a bigger financial drain than most people realize.
Only, it isn’t really about lattes. Mindless spending is spending on things that don’t significantly contribute to your emotional well-being. Canadian personal finance author Shannon Lee Simmons calls this “emotional return on investment” (ERI). David Chilton, a.k.a. the Wealthy Barber, speaks of “joy units.”
Pay attention to the small, recurring expenses that yield low ERI or few joy units, and cut those out.
But the thing is, what constitutes mindless spending varies from person to person. In fact, it can even vary depending on what stage of life you’re in. Which brings me back to lattes.
These days, they are a frivolous expense for me that I rarely indulge in (chai lattes, to be exact, because coffee gives me migraines). Instead, I run on strong black tea, which I order in bulk online.
That way, it costs me about $115 a year to keep myself caffeinated, drinking two cups a day. If I spent $6.50 on just three chai lattes a week, I’d blow through roughly $1,000 a year. You see my point.
But there was a stage in my life when a daily chai latte had a tremendously high ERI. That was me 10 years ago, in the first three months of my maternity leave, when I was home with a colicky baby who never slept for more than two consecutive hours.
For weeks, making it out the door with baby in tow to a neighbourhood coffee shop was the single goal and highlight of my day. And a steamy, foamy chai latte was often the only act of self-care I could reliably manage.
That latte was my thin lifeline to mental health – without a question an essential expense. Thoughts? Feedback? You can reach me at ealini@globeandmail.com
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Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for On Money here.Erica’s personal finance reading listLattes v. cars and houses
One more nugget of wisdom on lattes from financial planner Aaron Hector: “Coffee probably won’t derail your financial plan. Overspending on cars and housing might.” Amen.
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