Have your Latte…

I am sure you have heard of the savings method called “the latte factor”. If you haven’t it pretty much explains how instead of buying a latte (or any other morning beverage) for $3-$6/day on your way to work, you can save that money and make your own morning beverage and bank that money into savings. There are 252 working days (Monday to Friday, give or take depending on where you live) in 2016 so this would translate to a savings of up to $1,512/year if your latte was $6. If you buy a morning beverage every day of the year than you would save $2,190/year (365 days).

Now don’t get me wrong, these amounts are not small, and I am not against using the “latte factor” as a method of saving. I think if applied consistently it has its benefits. However, many millennials may not reach financial independence using this approach. Especially since most (like myself) have had a late financial start and don’t have the opportunity to take advantage of what time and compound interest can do for your savings when starting at age 21.

The best way to reach financial independence is to live well below your means, save at least 15% of your income or more and invest (whether in financial securities or real property or a mix of both).

So although I am not against the “latte factor” (I actually use a variation of this for some of my short term savings goals), I don’t think this is the reason people don’t:

  1. Have enough money to save for retirement
  2. Have enough money saved for their child’s education
  3. Feel like they aren’t making traction towards their long term saving & feel like they are living pay cheque to pay cheque
  4. Reach their financial goals

Yes, savings $1.5k- $2k a year from skipping Starbucks and banking that money will help in increasing one’s net worth, but in my experience it’s the bigger expenses that are incurred for a long period of time that keeps people from feeling like they can ever retire comfortably or have financial independence/freedom. There are 4 major expenses that will stunt savings almost every time. These are:

Car payments

Based on 2014 statistics, the average Canadian spent $437.48/month over 6 years (or 72 months) paying off their financed vehicle. A depreciating asset that loses a considerable amount of its resale value the minute it’s driven off the lot. Of that number 32% of Canadians traded in their vehicles because they wanted a newer and nicer model. The Average American spends about $483/month.

Some more stats for you:

  • The average car loan in Canada in 2016 has increased to 72 months (6 years), up from 65 months (5.5 years) in 2010
  • Banks have seen an increase in the car loan business of about 20% year after year since 2007 in Canada
  • The average person in North America will own 10-12 vehicles in their lifetime.
  • The average household in North America has 3 vehicles at any one time at their home


When you start looking at the numbers, it’s not difficult to see how a family can quickly become cash strapped paying off multiple leased/financed vehicles at a time. My husband and I always buy used and outright. Our current vehicle is a 2003 Mazda Protégé that we bought used 3 years ago. Outside of regular maintenance and repair this car has not given us any issues and we paid $3,000 for it. It drives great, has good mileage and best of all, no car payments.  This has allowed us to save thousands of dollars a year, and put this money towards other financial goals.


Too much house

This can mean one of two things, buying a property you can’t afford, thereby becoming “house poor” and/or, buying a physically large house that would require a lot of upkeep and costs to maintain on a regular basis. From my previous post ‘what it would cost us to buy a $500k home’, I went through the one time and recurring expenses it would require my husband and I to live and maintain a detached home in Calgary priced at $500k. Even though on paper, my husband and I could probably afford to purchase a home in this price range, the financial setback would to substantial. We would not have nearly as much money leftover at the end of each month to put towards our long term investments and savings goals. Any major expenses or significant reduction in income would cause us to use debt to continue to sustain our lifestyle. Most importantly though for myself, it would not afford me the opportunity to become a stay at home mom for a period of time when my kids are younger (once we have them). I would like the option to choose when that time comes.

If we ever do buy a home, we plan on making that decision and qualifying based on one person’s income (most likely my husbands). This would give us the opportunity to save a lot more money while still owning and having a dual income and not feel financially strapped in the event one of us is not working. It would probably be in a smaller city/town than where we currently live, where home prices are a bit more reasonable in my opinion.

To me buying a home which I can afford means more than qualifying for a mortgage and being able to make the mortgage payments on a dual income. It’s looking at different potential future life scenarios and seeing how home ownership may help or hinder one’s financial future.


Too much school. Not enough savings

When it comes to student loan debt, North Americans are more than familiar. The average Canadian graduated with $28,000 in student loan debt. The average American student graduated with $35,000 in student loan debt. I graduated with $64,000 and my husband with $46,000. I can tell you from personal experience that graduating with a lot of student loan debt can feel like a brick is tied around your leg with a rope and you are sinking to the bottom of the ocean. Without an exit strategy on how you plan on getting out of the mess (besides making the minimum payments for what will feel like an eternity) you may end up feeling defeated and deflated. I am not saying to be as aggressive as we were in paying off your loans. I am suggesting however to make a serious effort to try and reduce the time it would take you to pay off the loans by a half. After spending a year and a half making minimum payments on our student loans and not seeing any traction, we got fed up, relocated provinces to find better paying work and paid off our student loan debt in 2.5 years. Sometimes it takes feeling overwhelmed and financially exhausted to make a drastic change like that, I know it did for us.

Credit card debt

The credit card is a common financial product for most households in North America and if used correctly, can be advantageous. Some cards offer cashback, air mile points or other reward points when used. Plus, unlike other forms of unsecured credit, you can enjoy up to a 21 grace period on paying off the full balance of your debt without incurring any interest. This could buy you a week or two of using interest free money and paying it off at no additional cost.

We regularly use our credit cards, but pay the balance in full at the end of the month to avoid having to pay interest. The grade period time provides us with a short opportunity to play around with our finances if we need to, but we always make sure we have the money to pay off the balance before the end of the month.

Carrying a credit card balance month to month however will keep one paying interest for a very long time.  This interest could have been used to invest in appreciating assets like financial securities or real property.  The worst part of it is that credit cards are mostly used to purchase items that have an incredibly high depreciation rate or become obsolete quickly.  I know for myself, I use my credit card to buy things like food, clothes, electronics etc. What quicker depreciating asset is there than food? The average Canadian carries $20,776 of credit card debt in 2016. The average American carries about $15,762 in 2016. My husband and I carried a total of $10,000 is credit card debt between the two of us so we are no stranger to credit card debt.

So to recap, I am not against the latte factor as a method of saving money, but I feel that these 4 expenses are what really steal financial independence and security from North Americans.

So to that I say, have your latte and enjoy it, but steer clear from these 4 expenses that will steal your savings almost every time.




Categories: Budgeting, Debt

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16 replies

  1. I recall reading an article outlining some research that suggested people, in general, are more likely to shop around for good prices on smaller purchases than the big ticket items. They tended to shop around for a dress but simply take the interest rate offered by their bankers on their home loan!

    Many people simply will not get quotes when renewing their insurance which can save anywhere between zero and hundreds of dollars for a single year. It only takes a telephone, or two, call to find out.

    As for credit card debt. Credit card debts are often a sign of financial distress from people who simply can not make ends meet, often due to unemployment or under-employment regardless of how frugal they are. Sometimes they simply have no choice, a fact often overlooked by economists and journalists who comment on debt levels.

    Liked by 1 person

    • Yah that is true. Especially when it comes to insurance, many people don’t like to shop around. Interesting study.
      In terms of credit card debt some people use credit cards because they have no choice but this generally tends to be an exception and not the rule. Having an emergency fund and living within your means can help reduce consumer debt but sometimes life throws you a curve ball and even that may not be enough (ie. divorce, death of a spouse and no life insurance).
      Small changes overtime can make a big difference


  2. Hi Pamela,

    You’re right, taking care of the big things is way more important and you can save a ton of money doing it that way. I’d put a latte into the entertainment/luxury/blow basket – take care of the ‘needs’ in your life (but finding value) and then allocate a certain amount on whatever you want. If you want lattes, sure, you want to go to the cinema every month, sure etc.

    I think the latte savings idea is more of a systematic look at ALL expenses in your life, to see if you can achieve a better result. I bet there’s a good chance someone who buys a latte, also buys breakfast and/or lunch at work, and drives a car to work. Add a latte, a daily lunch and the cost of a car together and it really builds up for work – a lot of people don’t think about ANY savings. The reason I said those 3 examples is because I drink water, take a brown bag lunch to work and use public transport. But I get the same work done of someone who does those things 🙂

    If you take the “get best value for your money” to every single expense, then we should be on an amazing track.

    Really good post Pamela, thank you 🙂



  3. You’ve got it right. We can really do a lot more by being focused and down-to-earth.

    Liked by 1 person

  4. I agree that it is more important to concentrate on your bigger items. I believe the biggerbidea behind the latte factor is for those people who say they can’t possibly save another dollar. We all have our little spending that adds up to a lot. It is about recognizing it and realizing you can save more if you want to!


  5. Keeping track of big spending is better than sacrificing simple pleasures. Thanks for pointing that out.


  6. Agree with the big 4. I also don’t buy many lattes but I have other vices!. I have ‘blow money’ I can spend without guilt but still as you suggest, have a good savings rate. It is all so personal, I just try to spend intentionally, aligned to my values.


  7. OMG!!! This is truely me. Sometimes I have Starbucks serval times a day. Like honestly, in the morning at lunch and sometimes on my way home. I really need to think about making my own lattes and stop spending soooooo much money. Thanks Girl, this helps a lot.


  8. Spot on. You have found the “Big Four” and explained it beautifully. People sometimes have to choose between immediate gratification and long term desires and goals. You clearly provide options to achieving the long term goals. Well done.


  9. Agreed… Focus on the big items and be well aware of what you do with these little innocent expenses. We have fun money for the little(and bigger) guilty pleasures… we can spend it all, guilt free!

    Liked by 1 person

  10. Nice. Your blog is so helpful.