Tuesday, October 1, 2019

The Latte Factor

The first step to improving your finances is to spend less than you earn. But a great many people never seem to find the motivation to take this first step. The Latte Factor by David Bach and John David Mann aims to help readers find this motivation. It’s a short, easy read that many young people might find compelling.

The book is the story of a young woman whose finances are a disaster, and she gets some good advice from an unexpected source. Even without the financial lessons for readers, the story works well enough to keep the pages turning.

The first two of the book’s main messages are familiar to readers of financial advice: “Pay yourself first” and “Don’t budget—make it automatic.” The idea is that your savings should come off your pay first rather than waiting to see what’s left over after life’s expenses.

The final main message is “Live rich now.” The idea is to find a way to live the life you want now instead of waiting until some magical future time when you’ll have more money. It’s often the case that the things we truly want in life don’t cost too much money, and we can have them if we give up other things that are less important, like eating out and expensive coffee.

Some might think that this book is little more than a diatribe against expensive lattes. It isn’t. “It’s not about your coffee. The latte factor is a metaphor. It could be anything you spend extra money on that you could do happily without. Cigarettes. A candy bar. Fancy cocktails. Anything.”

One part of the book had me objecting initially. “When you rent, you are letting life happen to you. When you own, you take a hand in directing the events of your life.” With housing so expensive now relative to rents in many places, telling young people to extend themselves on a mortgage isn’t good advice. However, the philosophy of owning makes sense in other contexts such as cars and stocks.

Overall, I recommend this book for anyone whose finances are in poor shape and needs ideas for improving them. The lessons are described clearly, and the story form makes them easy to digest.


  1. When you own a house you are letting life happen to you, like when the condo board demands $40k to do building maintenance.

    When you rent a home you take a hand in directing the events of your life, such as moving to another city where you can get a better job.

    1. @Richard: Interesting and clever point. I'm not against owning real estate for those who can afford it. I own a house myself. But I've advised my sons to rent and invest the difference in costs.

      Among the people I've known who tried making money as landlords, about half lost money, even if they valued their time at zero. The successful ones are all very knowledgeable about home maintenance and can control costs by doing work themselves or choosing the right contractors. They are also skilled at sniffing out potentially bad tenants.