Building Wealth And Being Happy

A Practical Guide To Financial Independence

The One Thing Everyone’s Missing About The Latte Factor

The Disagreement

There’s been a little bit of drama in the personal finance blogosphere lately.

Rachel Thompson recently wrote an article titled “I’m a millennial, and believe me, coffee is not the reason I’m broke.” Rachel raised some valid grievances such as rising education costs and difficult job markets, but she passed off those grievances as excuses for frivolous spending. One specific paragraph landed her in hot water among the personal finance community:

“if millennials were to abstain from their avocado toast three times a week, they’d save around $3,432 per year. Which isn’t all that much, in reality.”

Of course, I quickly zoned out when I read the word “millennial”. But other personal finance bloggers were quick to jump down her throat, and for good reason. Robb Engen at Boomer & Echo mocked Rachel, questioning:

“in what reality is $3,432 not that much money? According to the author, [Rachel] life is unfair and millennials should just give up on the idea of owning a home, or saving for retirement, so just let them have their damn latte and $22 toast.”

Twitter users were quick to take sides:

Robb went on to make a few great points in his post. He noted that it really doesn’t take a lot of effort to prepare a cup of coffee and a lunch to bring to work. In fact, the willpower and strength it takes is very small compared to the benefit of saving several thousands of dollars per year.

Robb also mentioned that humans are in fact capable of doing more than one thing at a time. Getting the big, long-term decisions right on housing and investing are undoubtedly important. But if your IQ is higher than your number of toes, you should have enough brainpower left over to focus on meeting your financial goals on a day-to-day basis too.

What They’re Missing

I think both Robb and, to a greater extent, Rachel, are kind of missing the point here. A few dollars a day would be a fantastic price to pay if that freshly brewed cappuccino actually made you happy. Hell, I would pay a lot more than a few dollars a day for guaranteed pure happiness. But that cappuccino doesn’t actually provide happiness. Sure, it provides caffeine, adrenaline, and dopamine – But those things aren’t happiness, so don’t confuse or conflate them.

In Building Wealth and Being Happy, I wrote about optimizing decisions for maximum happiness. After all, if your happiness isn’t the main driver behind your decision making process, it shouldn’t be a surprise if you end up bitter and upset like Rachel. What’s the point of working hard at a job you love (or can hopefully at least learn to love) if you’re going to spend your hard earned money on things that don’t even make you happy?

It’s human nature to crave things that give you instant satisfaction. After all, our ancient ancestors had no guarantee that food wouldn’t spoil or be stolen by predators in the middle of the night. It was safer for cavemen to gorge themselves when they could. As a result, it is difficult for humans to prioritize long-term strategies over immediately gratifying impulses, and the path to financial independence is one long haul.

The good news is that we’re not cavemen anymore. We know a lot more about our brain chemistry and the things that give us long-term, lasting happiness. It turns out boring things like meaningful personal relationships and engaging hobbies and passions matter a lot more than the $22 slice of avocado toast that “really helps you get through the day”. Gee, who would’ve thought?

To his credit, Robb briefly touched on this. He made a pointed distinction between the hyper consumption that disastrously impacts your progress towards financial independence and the occasional treat:

“There’s a Starbucks and a Tim Horton’s on the University campus where I work and every morning there are dozens and dozens of students, faculty, and staff lined up to get their coffee fix. That is mindless habitual spending. It’s different than enjoying a Grande, Iced, Sugar-Free, Vanilla Latte With Soy Milk once a week at Starbucks.

Buying lunch every single day. That’s mindless habitual spending. That’s the Latte Factor. It’s different than enjoying an expensive charcuterie board with your partner once in a while.”

I have to agree with Robb here. It’s one thing to be addicted to caffeine. You can brew your own coffee or tea for cheap, and it’s sometimes even better than store bought. But it’s another thing to be addicted to shopping and the adrenaline rush you feel when the cash register clinks. Delay your gratification on impulsive cavemen purchases and make your (or others’) happiness the main driver of your financial decisions.

Categories: millennials, personal finance, savings priorities

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1 reply

  1. Well thought out comments sir.
    I hope your message gets thru to the masses

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