When life just sucks, it's so easy to just wanna turn autopilot on to get through the day. When we feel this way we usually spend more, care less and eat like we never had our favorite ice cream before (which for most Americans is still vanilla). Hmm... some things never change.
But, for many of us most things do. Like our current assets, debts and household income compared to when we were married. So, it should come as no surprise when we tell you that it's time to turn off your autopilot and get serious about your spending.
Is the café really a money grub?
The daily trip to your local café for a cup of Joe is the classic "wolf in sheep's clothing".
There's a concept that has been established by David Bach, a Best-Selling Author of books like, The Automatic Millionaire and Smart Couples Finish Rich. It’s referred to as “The Latte Factor”.
The concept is relatively basic and has been recognized as a simple truth about a common problem. Frivolous spending adds up and incremental investing can make a difference in your long-term goals.
The Latte Factor is a basis that we use in this article to show how skipping the purchase of a daily $5 latte and dedicating the money to an investment with a return of 10% over 30 years would result in $330,221 plus a little change. That’s one expensive latte!
Low cost, daily purchases make a difference. So does good financial planning and investing-
The problem for many of us is that we regard these low ticket, comfort purchases (the sheep) as innocent expenditures. When they are actually (the wolf) brutally attacking our potential long-term investment opportunities.
It's more than a cup of coffee.
No longer can we regard the purchase as a $5 expense. Instead, we should review our bank statement for wolves. What stands out?
Look for repetitive purchases such as coffee, lottery tickets, café snacks, ATM fees or fast-food meals. Use "The Latte Factor" calculator to determine what those wolves are doing to your money that could be dedicated to your retirement.
It's time for changes.
The truth about the problem is. that it's not as simple as it is obvious or obvious as it is simple. In other words, we make these purchases every day. So, it's obvious we are spending money on frivolous purchases that are high in frequency. But it's hard to recognize how a simple, small ticket purchase can cost so much unless we analyze it over a period of time.
What's not obvious is that it isn't just about realizing the real loss of such a small, high-frequency purchase, rather knowing what steps to take to discontinue it. The simple part is that the problem isn't about a cup of coffee. It's about a habit.
Attack the real wolf.
Once we find how much money is going out the window, we want to slam it shut. For many of us, the savings is hundreds of thousands of dollars. That's the wow factor! Yet, many don't get passed this part to make the next move.
The rest of us will want to stop buying that latte after lunch. We stop for a week or two, only to start buying a soda and chips at the convenient mart after work every day. It wasn’t the latte after all. The real wolf is habitual spending, an addiction.
How do we get addicted?
It starts with being undisciplined spenders. We want something, so we buy something. If that something has sugar, caffeine or simple carbohydrates then our body is being stimulated to produce hormones like dopamine when we consume it. This physical component adds to the addiction.
This is the same hormone that is activated by heroin and cocaine. It is referred to as a pleasure hormone and stimulates feelings of enjoyment, motivation and focus. This hormone is also activated when we make purchases or gamble.
Hormones like dopamine, serotonin and endorphins are rewards for the brain and a basis for physical addiction to certain habits. Satisfying these cravings stimulates the hormone which increases feelings of euphoria and motivation. They can make us more agreeable, sociable and even decrease our pain.
In fact, making a purchase of a sweet drink or lottery ticket has been proven to have similar addictive qualities as heroin! Heroin certainly produces more dangerous side effects, making its addictive component a recipe for disaster. But it's the same chemicals in the brain that are being stimulated and the same chemicals that we find hard to get through the day without. The more we do, buy and/or consume them, the more our brain and body become dependent and our baseline for feeling good is altered.
Can it kill you like heroin? No, in most cases you won't die from purchasing a cup of premium Joe every day. And perhaps that's why common dependencies get by us. But make no mistake, many of us have daily wolves in our lives that have the potential to have harmful effects on our lives.
Simple science
When you buy a super sweet soda or latte everyday your brain is rewarded with two types of dopamine protagonists, the sugary drink and the purchase itself. Buying a lottery ticket, like all games of chance, provide a risk vs. reward that stimulates dopamine neurons to flood the brain. This provides that physical component to the action that causes us to go back next time and buy another one. Habit, dependency or addiction, the cost is the same and it's not just the cost of a single lottery ticket.
Is it a problem? Maybe.
Now you know it’s more than a latte. The purchase is part of the addiction and undisciplined spending. You head to work every day and you get into the habit of stopping off for a latte or coffee. You take a break, and you stop in at the local café for an iced tea. You’re paying for fuel at the local Gasmart® and you pick up a lottery ticket.
If it’s occasional, you likely don’t have a problem. If it’s every day, routine and similar type purchases you need to stop. But are you ready?
Is this the time to break-up with your extra tall, extra sweet, double chocolate mocha latte with a double shot of espresso? 
What?!
Maybe not.
The addiction is real. The loss is large, and your latte is tall. But, on the scale of big pictures, you may be better off taking things one day at a time right now.
That’s right. There's an even bigger picture than the big picture. It takes into account the likelihood of your success removing a life pleasure at a time when life is so completely frickin' messed up.
No excuses - just realistic strategy
Yes, it’s an addiction and/or dependency, but in this case it’s not heroin. If it helps you get through the day with one less derogatory comment about your ex or one more ounce of energy to get your a@# out of bed in the morning, then keep it. Give it some time before you purge some of these types of problems from your life.
Don’t wait too long though. The financial pain won’t go away. But consider it a emotional/financial triage. Fix you, then fix your financial plan for your future. This will provide the best strategy for long-term success.
When you’re ready.
Addiction Front
- Recognize the spending habit and specific repeat purchases in an effort to discontinue
- Abstain from purchasing specific items until you are strong enough to purchase occasionally without it becoming a habit (for some this may not be possible without a financial coach or counselor)
- Add healthy habits that also increase pleasure hormones to incent you to improve your health and well-being (e.g., exercise, socializing)
- Remove triggers that cause you to take action to make these repetitive purchases
- Forgive yourself if you resume habitual purchases so that you quickly acknowledge and discontinue
- Develop stop guards to future repetitive purchases
- Think about how long you had to work this month for the total dollar amount of your repeat purchases for the month
- Ask a friend or family member for help in keeping you committed to your goal
- Seek counseling or therapy if you consistently resume your spending habits or are unable to stop frivolous spending at all
Financial Front
- Don’t stop all high-frequency purchases at once
- Start with the purchases that you know you can cut out easily
- If you cut one thing out, be careful not to add something else in its place of equal value
- Substitute with low-cost replacements- skip the café and make your own coffee at home
- Cut sugary, high carb, junk foods out of your daily meals so that you are less likely to physically crave expensive snacks and energy drinks as a daily habit
- Track your progress by monitoring your anticipated growth of savings based on your current changes
- Download savings apps that can help you save on everyday purchases to add to your long-term savings (Try the 2022 DMK Best Automatic Savings Apps)
- Actually, redeposit the savings into your investment account (it doesn't work if the money just stays in your checking for more frivolous spending)
- After a month of savings, you can determine an amount to initiate automatic monthly deposits into your investment account (you can afford it once you discontinue the habit) (Try the 2022 DMK Budget Series)
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