Can Cutting Back on Starbucks and Avocado Toast Make You Rich?
There’s a popular belief that cutting back on small, daily expenses like Starbucks coffee or avocado toast can lead to significant savings over time, potentially making you rich. This concept, often referred to as the “latte factor,” has been both praised and criticized. But is there any truth to it? Can skipping your daily latte or avocado toast really make a difference in your financial health? Let’s delve into this topic and see what the numbers say.
The Latte Factor: An Overview
The “latte factor” is a term coined by financial guru David Bach. It’s based on the idea that if you cut out small, unnecessary expenses (like a daily latte) and instead invest that money, you could accumulate substantial wealth over time. The same principle applies to other small luxuries, like avocado toast.
Doing the Math
Let’s say you spend on a Starbucks coffee every workday. That’s a week, or 0 a month. Over a year, you’d spend ,200 just on coffee. If you instead invested that 0 a month and earned an average annual return of 7%, after 30 years you’d have about 1,000.
Similarly, if you’re spending on avocado toast twice a week, that’s a month or 0 a year. Invested over 30 years with a 7% return, that could grow to about ,000.
It’s Not Just About the Money
While the potential savings are significant, the latte factor isn’t just about the money. It’s also about being mindful of your spending habits and understanding the impact of small, daily decisions on your overall financial health. It’s about recognizing that small changes can lead to big results over time.
But Will It Make You Rich?
While cutting back on Starbucks and avocado toast can certainly help you save money and potentially accumulate wealth over time, it’s unlikely to make you rich on its own. Building wealth typically requires a combination of saving, investing, and increasing your income.
So, should you feel guilty about your Starbucks or avocado toast habit? Not necessarily. If these are things that bring you joy and you can afford them without sacrificing your financial goals, then there’s no reason to give them up. But if you’re looking to save money or improve your financial health, it might be worth considering whether these are expenses you can cut back on.