I live in the land of Starbucks, lattes are everywhere.

The Latte Factor® is an idea/phrase that came from financial advisor David Bach. I mention this because I think you might not know. Despite having heard the term and seeing the idea both praised and debunked,  I did not know who to attribute it to until I looked it up for this post.

The main idea of the Latte Factor ® is that by giving up your daily latte habit, you could save an extra million for retirement, per year in your 20s. (Due to expected returns, the results decrease as you get older since the money is invested for less time.) This idea has been shredded by so many people and so thoroughly that I’d be surprised if you had heard of the Latte Factor® and not also heard it was bunk.

But I am here to tell you that I believe there is a Latte Factor®, and that it can matter, it can matter quite a bit, just not in the way Back presented it.

As with all things, this is a matter of scale. If what you are worried about is your retirement savings, your daily latte is likely not the problem. For me, the Latte Factor® was not about saving for retirement, it was about making ends meet on a monthly basis. And that’s a much different story.

Back in 2009 I was working a good job, with a great boss. But I had graduated with my MBA a year earlier and had not gotten a post MBA job at that point. Between C and I, we were making about $95k/year. Almost every day, I went to the cafeteria with my co-workers and got a venti, non-fat, no water chai. Many days I also got an asiago bagel, toasted, two cream cheeses and a jelly. Other days I’d hit the vending machine in the afternoon for a Coke (it took cards, so I didn’t even need cash to get my caffeine fix). On average, let’s say I was spending $5/day (and this is being nice to myself) on my chai and junk food habit. In a four work week month, that’s $100.

Let me also be clear that this was not my breakfast. It was not the only food I was eating that day. I ate breakfast at home. I had tea bags and sweetener at my desk. I brought in my lunch and snacks. What I got at the cafeteria was food simply for the sake of eating, not due to hunger. These were dollars spent on empty calories.

But it did not matter. Sure we had debt, but we could make all of our payments. We didn’t really have savings, but we had plenty of room on the credit cards, and we paid more than the minimum each month. We had paid off C’s student loans early, and once every couple of years or so, we would get the credit cards completely paid off. We were good. We were so good that we were considering forgiving a rather large debt C’s mother owed us specifically so that she could afford to move out of our house.

And then, C got laid off. We went from $95k/year to about $55k/year- almost half of our income. Suddenly, we could not afford to forgive the MIL’s debt. Without unemployment, we could not afford our monthly bills. Our car payment alone was $800/month. Our mortgage was over $1600. Those two things ate up close to 3/4 of my monthly take home pay.

And here I was, spending $100/month on food and drink I did not need. And it also suddenly became harder to give up. I ate when I was stressed or bored. At work, I was often bored, and now I was always stressed. Plus, I was the only person in our house who was working. I DESERVED my indulgences.

$100/month was the power bill. It was 1/3 of our grocery bill. Just like we could not afford to have MIL stop paying us back and move out, we could not afford for me to have a daily chai. It was not about having an extra million come retirement, it was about paying our monthly bills, not losing the car or the house. $100 buys a whole lot more in groceries than 20 days’ worth of tea, bagels and cream cheese.

There was a Latte Factor® and it was the difference between making it or not.

The brand of chai used by most coffee places. I can buy it at the grocery store and make it at home.

I never saw the Latte Factor® as a retirement savings plan, even if that was the way Bach intended it. For me, it has always been about being mindful, about paying attention to where my money goes and making informed choices.

One of the things C and I were most proud of during our 9 months of not being able to live on my paycheck alone was that between the unemployment and paying attention to our money, we never had to reduce my retirement savings. So maybe it will translate to half a million down the road.