Critique: Giving Up Your Daily Coffee (The Latte Method of Saving)

A Latte. Courtesy of Nuchylee, FreeDigitalPhotos.net.

Giving up Your Daily Coffee (aka The Latte Method)
Some blogs will have you think that if you give up your daily coffee (or a soy half-caff cappuccino), you'll save far more money than you could ever imagine. This blog suggests savings of $200k in 25 years if both you and your spouse¹ give up your daily cup of premium joe. Sounds simple. Unfortunately, there are a lot of issues with this line of reasoning. This post seeks to bring some of those issues to light, and as a result, how to get the latte method to work for you. But first, some definitions. The latte method describes, more generally, any method of cutting back on small expenditures that you make often to save money. For this post I'm going to critique the conventionally used daily coffee example, however, you should be able to apply the reasoning to any area of spending that the latte method can be used.

Assumption #1.1 and #1.2: You get premium coffee from a coffeeshop every day (1.1), and that by no longer buying it you've cut it out completely or switched to a free alternative (1.2)
A lot of the savings numbers that are quoted online assume that you order coffee from a relatively expensive coffeeshop on the daily. They also assume that you've stopped drinking your daily coffee completely. I confess, I have a cup of coffee or two every day, and know that if I go without it I feel like this. A more reasonable course of action would be to cut down on the amount of coffee you buy from coffeeshops, perhaps by drinking less, making your own, or both. It won't lead to huge savings, but it will result in moderate savings with a minimal change in lifestyle. More generally, the latte method only works if you are indeed making these small expenditures regularly enough to make cutting down on them worth it.

Assumption #2.1 and #2.2: The money you save isn't spent elsewhere (2.1), and is immediately invested (2.2)
Another issue with the latte method is the assumption that whatever money you do save from switching to cheaper alternatives you don't end up spending elsewhere. The whole point of saving money in the first place is to use it for some other purpose which you value more, like a vacation with your family², buying a new set of speakers or buying gold, piling it up and in a fantastically garish display, and slaloming down it. Although sitting on those coffee funds for 25 years is possible, not only is it unlikely, it's pretty absurd. If you have effectively saved using the latte method, you should use those funds for something you care about instead of letting them sit in a bank account for an entire generation.

Say you've addressed assumptions 1.1, 2.1 and 2.2. Congratulations! But before you start counting the theoretical millions you'll have in 50 years, you need to ask yourself where you're saving the money. The $200k number provided above assumes that you're getting 8% returns annually for 25 years. In addition, it assumes that you're investing whatever savings you get as soon as you get them. Turns out the latter is actually doable with some personal finance savvy. Most savings and investment accounts allow you to set up recurring contributions. You pick a time interval and an amount, and presto transferro!, funds are moved from your checking account to these accounts automatically. I'd highly recommend this as a way of getting yourself to commit to saving. Calculate the amount you'll save from giving up coffee each month and have that amount automatically transferred.

Assumption #3: Cutting down on your daily coffee won't drive you insane
Okay, a bit sensationalist, I know, but let me convince you that I actually have a point here. There may be some areas in your life where you make lots of small expenditures and cutting down on them won't impact you adversely, but there are also areas in your life where cutting down will make you miserable. A question to ask yourself when thinking about an area where you can decrease spending is even worth it. That is, are the things that I can use the money I save for worth giving up whatever I'm giving up?

Conclusion, or, How I Learned to Stop Worrying and Love the Latte Method³
If you read my last post, you'll know that Cutting Edge is all about saving with purpose. To get the Latte Method to work for you, first identify what you're saving toward. Otherwise it can be difficult to motivate yourself to save. Then, go through your monthly expenditures (credit card bills are an excellent place to start) and identify areas where you make a lot of repeated small expenditures that you can cut down on without significantly decreasing your quality of life. Next, calculate how much you want to save and create a plan to do so by cutting out or minimizing spending in that category. Set up a recurring contribution to your savings or investment account for that amount. Last, wait until you've completed your goal, pop some reasonably priced bubbly or sparkling cider, and celebrate having achieved your savings goal!

Okay, you've finished this post, you're ready to make the Latte Method work for you, but you need a little inspiration. Never fear, Cutting Edge is here (and technically has been here this whole time...)! Check out this inspirational list of common areas where people make a lot of small expenditures that are easy to cut down on:

• Coffee. You've been paying attention this whole time, right?
• Eating(/Drinking) out. I'm incredibly guilty of being bad at this if it makes you feel any better.
• Entertainment. Wait for those romcoms you secretly love to be released for rental? Use the library instead of your e-reader⁴? Play a trippy screensaver with the lights off while listening to dance music in lieu of a concert⁵? Yes please.
• Clothing/Cosmetics. You look stunning right now, trust me. But actually, take the time you go between buying clothing or cosmetics and think about how much it'd change your quality of life if you doubled or tripled it.
• Any services you can easily do yourself. Iron your own clothes, clean your own place, pump your own gas⁶.

Got any areas to add? Intriguing successes or failures using the latte method? Please share in the comments!

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1. Thanks for reminding me I'm still single...jerk.
2. Now I've just reminded myself that I'm still single. Shoot.
3. I'm not just an art poser (see the links), I pretend to know about film as well.
4. Or you're reading the classics on your e-reader.
5. This is a joke. I totally haven't done this before. I swear. As a sidenote, I'm also an terrible liar.
6. Unless you're in New Jersey. New Jersey is weird.
?. There's an easter egg link on this page. Give yourself a pat on the back if you can find it.