The Latte Tax

David Bach, in The Automatic Millionaire warns us of the Latte Factor: how small, daily costs add up to big expenses. Whenever the Latte Factor is mentioned, shocking numbers always follow: for example, if you don’t by a $4 cup of coffee daily and instead invest the money, after thirty years you will have $263,000. Bach has a Latte Factor Calculator on his website where you can adjust the numbers to your situation.
While the mathematics of the Latte Factor are undeniable, thinking only of the long-term investment value of every cent leads to an aesthetic life. There was an interesting rebuttal to the Latte Factor in the New York Times on enjoying the small expenses in your life.
While I love planning for the future, I’d like to propose a compromise between blowing money on lattes and never doing so:
The Latte Tax:
Each time you buy yourself that small thing that you enjoy, like a Latte, tax yourself. Put an equal amount of money toward the most fiscally responsible, long-term goal you can achieve. Appropriately I started writing this article from Starbucks. I paid £4.10 for a Latte and blueberry muffin. When my bank statement arrived, I saw the Starbucks line and transfered £4.10 into my retirement account.
I like going to Starbucks and other coffee shops. They are an important part of my working routine. If, at the end of each month, I tally the Starbucks lines on my debit card statement and add that amount to my retirement account I can enjoy what I like and plan for the future as well. Tax yourself and enjoy life’s small pleasures, guilt free.
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Header photograph by journeyscoffee
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