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A frugal barista explains how to finance your coffee habit

Personal finance scolds warn people to cut back on their lattes to reach their big financial goals. This barista shares her advice on how to enjoy your coffee and save.

If there’s one piece of personal finance advice that just won’t go away, it’s that our daily lattes are what’s keeping us from saving for our big financial goals. Earlier this year, financial guru Suze Orman told CNBC’s Make It that spending money at a coffee shop was like “peeing $1 million down the drain.” David Bach, who coined and trademarked the phrase “the latte factor” after writing about how much you could earn by investing the money you were spending on coffee in his 1999 book Smart Women Finish Rich, just published a new personal finance guidebook: The Latte Factor: Why You Don’t Have to Be Rich to Live Rich.

But not everyone agrees that financial independence can be achieved by something as simple as giving up coffee shops. When I interviewed Tanja Hester, who gained financial independence and quit her day job at age 38, she explained that it was a lot smarter to cut back on big expenses than to nickel-and-dime smaller ones: “Housing and transportation give you the most impact, in terms of saving money, for the least effort. If you can keep those costs contained, they will do more for your savings rate than any other thing you do to save money.”

Plus, coffee shops serve an important purpose: They provide a place for people to gather during the day, they give workers a chance to leave the office for a few minutes and get some fresh air, they give people who work from home an opportunity to work somewhere that isn’t their own living room, and they host everything from book clubs to play dates to open mic nights.

A good coffee shop isn’t just about coffee. It’s about community.

So if you want to keep that community — and that cup of coffee — you’ll have to figure out a way to finance your latte habit. To learn more, I turned to a person who knows coffee inside-and-out: barista Alissa Hutchison.

Alissa is the store manager at Daniel’s Coffee & More in Las Vegas. She’s been a barista for six years and got her start working at Starbucks during her first year of college. “I ended up loving it — the coffee industry as a whole,” she says.

One of Hutchison’s favorite parts of working in the coffee industry is getting to meet so many different people (yes, these would be the people she’d no longer get to interact with if we all cut back on our coffee consumption). However, she knows that coffee isn’t cheap — and she knows why it costs so much. She can help you finance your coffee habit.

Should you cut back on coffee?

Hutchison identifies herself as a very frugal person. “I hate spending money.” Free coffee is one of the perks of working in the coffee industry, so she doesn’t have to ask herself whether the latte factor is getting in the way of her financial goals.

But what about you?

“It depends on who you are,” Hutchison says. She sees some customers nearly every day, buying five or six coffees a week. If each cup of coffee costs $5, that’s $30 per week before tips. (Always tip your baristas.)

David Bach offers an online latte factor calculator to show us how much money we could earn by cutting back on coffee. If our hypothetical customer bought just three cups of $5 coffee per week instead of six — which is still a lot of coffee — they’d save $15 per week. That’s an extra $780 saved by the end of the first year. If they invested $15 each week for 30 years at a 6 percent return, they’d increase their net worth by $65,365.

As Tanja Hester reminds us, there are often bigger and better ways of saving money. When I moved to a lower cost of living area, for example, I cut my rent costs by $400 per month. You won’t get those kinds of numbers by giving up lattes.

Still, knowing how much your coffee is costing you is the first step in deciding whether the money you’re spending on coffee is worth it.

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How much should a cup of coffee cost?

Why is coffee so expensive, anyway? As Hutchison explained, there’s a lot more that goes into a good cup of coffee than many of us realize.

How much you pay for coffee will differ depending on where you get your coffee. A fast food or gas station cup of coffee might cost around $1 or $2, but that probably won’t be the best coffee you’ll ever drink. The type of coffee you get at a specialty coffee house is more expensive because the coffee house uses higher-quality products, machines and techniques.

“The beans are better, they’re roasted better,” Hutchison said. “The coffee roaster process is more intricate. Your coffee might come from a single-origin bean roasted that week or just yesterday.”

You’re also paying for better baristas, who understand everything from how to make latte art to how to work the machines. “There’s so much more that goes into making coffee than people think,” Hutchison told me. “If you want a ristretto shot, you have to calibrate the machine a certain way.” Baristas need a working knowledge of different types of beans, roasts, and pours — and they also need to understand how to match that knowledge to customers’ individual tastes.

“After knowing the process that goes into a cup of coffee, it’s worth five or six dollars.”

Should you budget for your coffee habit?

Like any other expense, not paying attention to how much your coffee habit is costing you can lead to overspending — and, in some cases, mounting credit card debt.

So even if you don’t want to save an extra $15 per week by cutting your coffee visits in half, it’s still important to know exactly how much you’re spending on coffee, and how those costs fit into your current budget and your long-term financial goals.

If the amount you’re spending on lattes doesn’t match up, it might be time to cut back — or find another part of the budget that you can cut instead. Maybe it’s time to say goodbye to that gym membership you never use or that streaming service you never watch. If you discover that your budget is even tighter than you realized, you may want to pick up a side hustle.

Whether you’re a true coffee aficionado or whether you simply enjoy visiting your local coffee shop for its atmosphere and sense of community, it is possible to enjoy a regular latte habit while still managing your finances responsibly. Even David Bach notes that “the latte factor” is a metaphor; it’s not the latte that’s the problem, it’s the fact that many of us spend more money than we can afford on stuff we don’t really value.

So if you value a good cup of coffee, there are plenty of ways to incorporate it into your day-to-day spending. As Hutchison puts it: “If you’re not managing your budget, a $5 coffee can hold you back from financially achieving your goals.” But if you are managing your budget, then feel free to enjoy all the high-quality coffee you can afford.

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Nicole Dieker is a full-time freelance writer. Her work regularly appears on Bankrate, Lifehacker, The Write Life and numerous other sites. She is the author of Frugal and the Beast: And Other Financial Fairy Tales. This article is sponsored by Haven Life Insurance Agency. Opinions are her own.

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About Tom Anderson

Tom Anderson is an award-winning financial journalist whose work has appeared in CNBC.comKiplinger’s Personal FinanceMoneyMonocle and Wired. He was a 2008-09 Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University.

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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