Coffee Isn’t Making It Hard to Reach Your Financial Goals, but This Mistake Is

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It’s likely not the little purchases that cost you in the end. 

The “latte factor” is a well-known concept in personal finance. Essentially, the argument is that you end up wasting so much money on little things — like a daily coffee drink — that you cost yourself the ability to become wealthy.

Unfortunately, many people have bought into this pervasive myth and believe that stripping everything fun out of their budget is the right way to grow their savings account or accomplish other financial goals. In reality, it’s not. It’s difficult to sustain over time, and there are better options out there.

In fact, one YouTube and TikTok personality — and finance guru — explained the types of mistakes that really end up costing you opportunities. And, none of those mistakes have to do with buying yourself a coffee if you enjoy it.

Could this be the real problem in your financial life?

Humphrey Yang recently called out the myth of the latte factor on Twitter, pointing out many other common decisions people make that have a bigger effect on their long-term financial success than buying a coffee ever could. Yang used his own experience to describe some of these other bigger mistakes, including:

Paying a lot for expensive luxury travel: “While you’re young and able to handle it, stay in reasonable accommodations,” he advised. “That hotel that costs $500/night in Germany isn’t worth it. You’ll be surrounded by older people you don’t want to hang out with anyway. I know because I did this. I ended up going to a hostel for fun.”Purchasing a brand new vehicle: Yang pointed out that new cars lose a significant portion of their value as soon as you drive them away, and suggested buying a three- to four-year-old vehicle instead. Investing in things you don’t understand: He advised staying away from hot tips provided by friends, and following the simple rule: “If you don’t understand it: don’t invest.”Gambling: He described this as “throwing money away” unless you’re using gambling for entertainment and have a set budget for it. Buying expensive furniture: Like cars, furniture depreciates quickly so Yang suggests purchasing middle-grade furniture that’s likely to last a while but not cost a fortune. Renting an apartment that’s too expensive: He warns that this effort to “keep up with the Joneses” could be a big mistake as you get stuck with housing costs eating up a high percentage of your income. Purchasing designer items: As Yang points out, being rich is better than looking rich, which is all that designer items are intended to allow you to do. Spending a fortune on expensive restaurants: Although he said doing this once in a while could be fine, you shouldn’t do it too often since food and alcohol have such big markups and you have nothing to show for the money after you’ve eaten your food.

Yang explained that these mistakes can come at a much bigger price that has a far greater effect than buying coffee. “One $3,000 mistake is worth two years of $4 daily coffees,” he said. “And they say coffee is making you poor. Yeah right.”

Is Yang right?

Yang’s advice here is spot-on. Rather than nickel-and-diming yourself to death, focus on getting the big stuff right — like living in an affordable house and driving a cheap car. That way, you can enjoy your money, won’t have to constantly deprive yourself, and can put your hard-earned cash to good use and accomplish your financial goals, like saving for retirement.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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