I’ll spare you a click and let you know that this is based on the premise that saving a little more than $3 on coffee a day would turn into $1 million, after 40 years at 12% in a Roth IRA.
She further goes on to say “You are peeing $1 million down the drain as you are drinking that coffee.
Do you really want to do that?”
Guess we all now need to stop eating food as well since we know how it ends up.
Numerous financial “gurus” have touted a variation of this “Latte Factor” theme with amazing regularity ever since David Bach popularized it in his book The Automatic Millionaire.
Cost benefit analysis of $3 coffee
For every expense, it is necessary to do cost benefit analysis with respect to the value of eliminating it. For the larger fixed cost expense, is it worth it?
Absolutely!
But for a $3 coffee, would the savings be worth the deprivation and the added stress of decision fatigue?
For every small day to day purchase, if you have to constantly decide whether to go for it or not; you will soon find yourself getting tired with “decision fatigue”.
She dreamed of having her own restaurant. Because of her work ethic, few of her customers wanted to support her dream and loaned her $50,000.
Without educating herself on how the risk/return profile of different assets; she handed her money to a broker at Merrill Lynch who invested in options and lost it in a market downturn.