Buying Lattes Verses Everything Else

In 1997, Richard Carlson published a book with a title that's become a cliche. Don't Sweat the Small Stuff. The idea of the book is to keep from letting little things in life drive you bananas. I remember buying it from my mom, and she read it. She liked it. I would remind her all the time. Don't sweat the small stuff. I have to admit, though, I've never read it. Sorry, but you say it to me all the time. Do I?I

don't. And now, even though he didn't publish the book until with this title until 2019, another guy back in the 1990s was developing this idea. His name is David Bach, and he coined this title of his book that he has later on. He coined the idea, though, back then, The Latte Factor. The latte factor is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see where you could spend less and save or invest

more. Don't buy that latte, for example, or start packing your lunch instead of eating out. Cut expenses. You'll get rich by investing instead. It was what David Bach was trying to put out there. So which is it?Don't say the small stuff. Or sweat the small stuff cause that that that can make you rich, right?Is it penny wise, pound foolish? Or is it take care of the pennies and the pounds will take care of themselves?Yeah, that that is a hard thing to do, right?So

today we're going to jump into the thick of it and we're choosing a side in a world where chaos seems to reign supreme, where uncertainty lurks around every corner. And financial markets are now more unpredictable than ever. There's one place you can turn to to find clarity and control. Welcome to the Wealth Wisdom Financial Podcast. Hey, I'm Brandon. And I'm Amanda. Join us as we dive deep in the world of personal and business finance to assist you in navigating through the chaos and building

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OK, so in the last episode we talked a lot about fees and how that maybe is. A latte, I don't know, something like that that that can impact a lot of things. So that was that one. It was a great episode. I think, you know, Amanda did a lot of math here. But today we're going to talk about this thing that we call the latte factor. And I have to say, I remember back in the day that Amanda was leap reading Suzy Orman and we. Didn't have a lot of lattes because that

was all the grades back then. And she was a big, what do you call that? She she loves Susie Orman, read the books, did all the stuff on hers. And so I would hear all the time we we can't do that latte because you know, we're going to take care of this debt or not and all this other stuff, student debt. And then Fast forward a little bit. We used to own a coffee shop. And so that transformed us a little bit into our thinking.

And then and now today we are in the financial world and said let's do some math on it and see what it really

does. Yeah. So conspiracy theorists, yes, we used to try to convince people to buy lattes. We have no financial interest in people buying lattes anymore. We sold that business. We do not make any money off of people buying lattes, at least that we know. So if you're a conspiracy theorist saying that we're trying to get you to buy a bunch of lattes because we're going to make a fee off of every latte you buy. I'm debunking that.

That doesn't. That won't happen. But for you conspiracy theorists, I will let you know David Bach was a financial advisor. He started his own financial firm. He would probably make a lot of money off of people instead of buying lattes, investing their money with him. Right. He'd make those fees that we talked about in the last episode. So maybe he had some incentive to tell people not to buy the lattes. Whereas if you don't buy lattes, you can do 150 a week and blah, blah,

blah. And you know, who knows?Whereas Richard Carlson was a therapist, an author, a motivational speaker. Yeah, he probably had some motivation to create something that people want to buy, right? Like in terms of the book or to get him some more motivational speaking gigs by having a book, right?Great business strategy there. But he was at first and foremost a therapist, right?And he would meet with people, help them to overcome stress and anxiety. And that's how he made money, was actually

helping people that way. And so, you know, maybe that's whoever you want to believe. Do you get some of the back story there of who was putting these ideas forward?Don't put the small stuff in the latte factor. Yeah, look at the people that write it. Don't just do a meme or video or any of that without doing some of the research of. Who coined these terms and why?Yeah. OK. So you ready for some wisdom?Here's some wealth wisdom. I'm ready. I like wealth wisdom. OK.

There is wisdom in both the latte factor and don't sweat the small stuff. We're going to give you some numbers and you can choose for yourself, and then we'll share which side we come out on. You might guess it as we go through these numbers of what's more important, not buy the latte or to do XY or Z. You ready for that?We have 3 examples. All right, let's go.

ready for these comparisons here's my latte and if you're listening on the podcast this might be a great time to switch over to the uh YouTube so you can see my amazing drawings they're not amazing yeah we'll also try and share it if you're listening on the podcast share as much what we're saying but um video or uh thevideo version is really good. And, uh, but also at the same time, hey, don't stop, um, driving to go watch our video. Uh, make sure you're driving safely and don't

forget to write a review. Okay, here we go. So this is, um, close to home for us because when we were house hunting, um, a little over four years ago, we were approved for, let's say this isn't our real numbers, but let's say weWe're approved for 600,000 house mortgage, right. I I don't even remember. But we chose to spend way less than that. Let's just pretend we chose to spend about 300,000.

OK. Seem like most people, they're like, I'm gonna go all the way up to what I'm approved for, but let's see what that actually does, how that breaks down. Well, the difference is that you have a different monthly payment, so monthly. Monthly. This one's 1432, the smaller one, and the bigger one is 2864 double, right?Makes sense. That's your monthly payment, not including property taxes and insurance and all that. And and also the the cost of what do they call it?Nesting

where you fill up the house. Oh yeah, it's gonna cost a lot more to paint the bigger house and stuff too, right?Yeah. Well, that's let's compare that on a 30 year mortgage. What does that mean? That is $515,520 difference, not just 300, right, Because you got all the interest in there and more interest on the the larger mortgage there, big difference. So let's compare that to the daily latte, which you know 4 dollars, 1460 per month. Which over 30 years is 43,800.

What do you think?Better decision to skip the latte or to buy the smaller house? For me, it looks like buy the smaller house and also don't know what the interest rate on the house is, but probably, you know, decent. And if it's a higher interest rate, even more reason to buy the smaller house. Yeah, and for comparison's sake. The difference here is a 12 times difference. That's a pretty big factor over 30 years. I'll drink lattes all day long. Yeah. Okay,

now let's do a different analogy. Instead of the house, let's do something related to your career. Let's do a paycheck. Here's your paycheck. Jane Smith for this amount signed versus a little bit bigger of a paycheck, right? Plus. And we're gonna do this is 5000 more than the other one. OK, so you just you asked for a raise, you got it. You got asked for a raise. You you were doing a a side household or something that was making 5000 more, 5000 more. It seems

small, right?Wrong. Over a 40 year career with 3% increases per year, just you know that 5000 turns into 600 / 600,000 of extra pay. And if you save, you know, 15% of that, you're able to save 200 of it, right?And can have way more in retirement, that kind of stuff. Or no, with increases it turns into 200, but whatever. Yeah, you're able to save a lot more to compare that to get the same amount of 600,000 of you'd have to not to buy 150,000 lattes.

I mean, I don't know if I'm going to buy 150,000 lattes anyway, but anyway, right. But that's how much you'd have to cut $4.00 from your budget to make the same amount. Wow. Or to to to have the same amount in your cash flow. Big difference there. OK, let's go to the next one. This one is for the younger people. So kind of like in that example is income versus

budgeting kind of a thing. Yeah. OK. This one you're going to want to forward to any parents you know with kids, particularly kids in their teenage years or maybe to some teenagers. Yeah. Feel free to forward this to them. Yep. And the cost. You can say it and then you don't have to. The cost of the the decision, the pre-decision. Yes. So this is about college. So we're going to do a little state school here. We'll call it. Oh, because we're in Ohio, right, versus a private school.

OK, let's say the in-state school costs 22,180 per year, and the private school costs 50,770 per year. Now go get your grandson. scholarships, you know, all those things. Sometimes private schools have more of those available. So still apply to both, fill out the FAFSA for both, see what you get rewarded. But if this was the decision you're making between 22,000 and 50,000, that's a big deal. And some people are actually paying more, right?Like one private school I know with 60,000 to go.

And I hear this all the time where where the parents or the kids, like, I really want to go to this school and the cost is. Way more on the private side, of course, than the local. And so just making sure you make the right decision. And again, we've seen this in real math with real clients as we work with college, college kids all the time. Yeah. So what's the difference here isn't just the. 28,000 in one year, there's four years of college. So that's a difference of 114,360 /

4 years, right?And if you're going into debt to do that, it's going to compound into even more in interest that you pay. But let's just say you're paying cash. The difference there is that you could that $4.00, right?That's 28,590 lattes. And what's the college student doing?Right, rightThey're gonna spend this and this during college and they're like, but I really want to go to the private school cause my friends are going and can I borrow your credit card?Yeah, I

did start drinking coffee in college. I probably, I don't know if I drank 28,000 lattes, but I did drink a lot of coffee to get through those finals and make good grades. And we had a lot of customers that were college kids. Yeah, when we owned a coffee shop for sure. OK. Enough math here. Let's go back and

break this down in a little bit different of a way. We last episode we mentioned psychology a little bit. We're going to be talking a little bit more about psychology this month. Actually, in our Wealth Wisdom financial community, the monthly theme is pragmatism and getting very practical. And psychology also starts with a P, even though it doesn't sound like it. And I was reading

a book this summer. Yes, I'm a nerd, a book that was about some dudes that did some really cool things with developing psychology during the 20th century that I'm looking forward to sharing with you in a couple episodes. But we often forget in the dollars and cents and the math to also think about some of the hidden costs of obsession over small expenses. We talked

in the last episode about fees, right?You actually have to do the research, find those fees, monitor them if they're not, you know, especially if they're hidden. Well, there's also a hidden cost when it comes to being mindful of daily expenses. That's not bad, but obsessing over it can be very stressful. It can do a lot to your psyche and to your time, your mental energy, right?Tracking all those small expenses, they actually can call it frugal fatigue.

Where you get so fatigued of being frugal and cutting those expenses that guess what you do?Go spend, right?You you splurge. You they actually there's the younger kids are calling it doom spending these days, right?You've been so restricted, so restricted that you just splurge and doom spend and you end up in a way worse place than if you hadn't been so restrictive to at the beginning. And plus, you missed out on all the joy and fulfillment from some of those expenses

along the way. You missed out on all the lattes, right?Or all the people that you could have connected with when you went to that coffee shop, or the extra work you could have done because you were extra productive from the caffeine, you know, whatever it might have been. Same kind of thing happens in all kinds of areas of our lives, dieting being a big example that people talk about. Diets don't work because they're

restrictive, right?How do we think that's going to work with our budgets too?Yeah. I mean, I I literally was talking again to another client about this and I said, how do you overcome some of this fatigue or differences of of I'm not, I don't have enough. And they said, well, I will spend money to feel like I have more. Yeah. So let's instead choose a middle ground. Where we're being super intentional with big decisions and maybe we automate some small savings

or maybe some bigger savings. So instead of stressing over every penny, consider this approach. Make some informed decisions of big ticket items, housing, education, career, cars you buy, vacations you go on, you know, like all kinds of things like that. Automate your savings. Make it, you don't even have to think about it, yeah right?And then allow yourself those small pleasures without guilt. That's a really big one, particularly people who maybe grew up not having a lot. You feel guilty. We

feel guilty. And this is this is one of the things that's really hard. If you, just forewarning you, if you adopt this approach, let me get real with you for a second. And like,You're saving $500,000 on your mortgage, right?With all the interest and stuff, you're going to have money to do some really cool things. Yeah, we have money to do some really cool things, and we have to get over the guilt that comes with that and the people who say. Wow, you must, you must have a lot to be able

to do that. What?Who was somebody who did that?I remember like as I've gone on a few trips and and taken pictures, you know, I think we were in Cancun and and Hawaii, some for work, right?But. Someone, a family member said that must be nice having a, you know, having a rich nephew or something like that. And I was like, well, not really rich. I just live one within my means. I I did, but we did buy a

smaller house. So that way we could do more experiences and to be able to do those experiences and be OK with that. So then when I go on these trips, that's. I'm OK with it, right. And that's something that is I pre-decided having a smaller house because I didn't

need all of that. Now again, some people are like, yeah, but I want to, I want this and this and and then they come back to me and get and they're maybe saying those things on social media and you're like, well, can I look at your mortgage or what kind of house you have and and I see where there's. Bigger expenses because they pre-decided. I like that bigger house versus that, but I want the house. Yeah, or whatever. Yeah, I call it the iceberg effect. We see the top of the iceberg,

right?We see what people post on social media. We see the car they drive, we see the clothes they wear, that kind of thing. We don't see what's below the surface. On one side, you know, keeping up with the Joneses, people think, oh, they're doing all these things. They have the big house, they have the nice car, but they don't see the debt they're in. Or on this other side where you've made some really good decisions to make the below the surface,

nice and solid, right?You've got the smaller house, the smaller mortgage payment, you've got the grants and scholarships for college or went to the state school, right?Like whatever it might be. Then the above the surface, you're you can still share right the trips, the cool, you know, things that you're able to do, you know more. That's more So what our generation does, more the experiences rather than the stuff. And people don't see what you did underneath and you should not feel guilty

about that. Live your life, have fun. We have to remind ourselves of that all the time and continue to press into that. So little tip there, being real for a second, so. If you want to talk to somebody that gets what that feels like, right?We're we're all ears. Here's how you get in touch with us.

Ready to take the next step towards securing your financial future, whether you're planning for retirement, saving for your dream home, or you just want to make your money work harder for you. The team at Wealth Wisdom Financial are ready to assist you, and now it's easier than ever to see how we might give you a boost on your financial journey. Schedule a 15 minute discovery call with one of us today and let's discuss your questions and your financial goals together. Don't

wait any longer. Your financial freedom awaits. Schedule your discovery call at www.wealthwisdomfp.com/call. So to recap here, while the latte factor isn't wrong, it's just maybe not the most efficient path to financial freedom. And we're all about efficiency here, you know. Right. Efficiency, control, safety. Yep. Yep But by focusing on the big financial decisions and then automating your savings, you can build wealth without sacrificing your daily joys. Remember, life is meant to be lived, not

just saved for. Savings is important, but living your life's important too. Yeah, having a a boat, like I want to be able to enjoy it. Go on those trips if I can. Yeah, and so go ahead, enjoy that latte. Especially from a locally owned independent coffee shop. Here's my iced coffee I'm having today that Brandon bought for me for work. Know when we were recording the podcast and needed some

beverage to to make it lighter. And it's from a locally owned coffee shop, from coffee, locally roasted, direct trade, right?Be very intentional, those kind of things. With what, how, what lattes you're buying even just to make sure you're making smart choices on where you live, what you drive, you know, making the most of your career, all those things. Those are the decisions that we believe truly shape your financial

future. And of course, go back to the last episode for the decisions that shaped your financial future related to where you save that money, where that automated savings goes and the fees you're getting charged on it. Yep. So. So with all that again. Part of why we think this is so important is because it's again, you have to live your life and live it now, but also prepare for the future. And that's again why we

wrote the book 5 Smooth Stones. It helps you make that decision onto which way to go and hey, be OK with spending on lattes and doing those kind of things. So and remember, the topics presented in this podcast are for general information only and not for the purpose of providing legal accounts. Or investment or, I don't know, coffee advice on such matters. Find somebody who knows your specific situation and enjoy that latte.

And in the comments, if you can write your favorite beverage coffee that you like lattes, I don't know. It doesn't have to be a latte or coffee. It could be, I don't know, Red Bull #5. I don't know whatever. I don't know, isn't it?Yeah, I don't know. And make sure it's not just anybody that you consult, but a professional who knows your specific situation and live long and profit.