How Your Morning Coffee Stop Impacts Your Financial Future

Buying a morning coffee every day isn't why you're in debt.

Author Helaine Olen, writes in her book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, that you can't actually bust your budget with small indulgences.

The belief that cutting small expenditures, like coffee, from your daily routine will eventually add up to a significant sum is known as the Latte Factor. 

The Latte Factor was popularized by David Bach in his book, The Automatic Millionaire.

Olen agrees that cutting small indulgences saves you money, but she says the broader lesson should be that reducing expenses over all is what's best for your financial future.

"There was only one thing wrong with the latte factor," writes Olen in her book. "It wasn't true."

"It didn't work mathematically. It didn't work in terms of what we were actually spending our money on. And it didn't take into account what life costs were actually rising or falling. Bach, whether by design or true belief, had concocted a catchy slogan that appealed to our desire for a quick and easy fix, but one that bore little relation to economic reality," she explained.

The problem is much more complicated than many personal finance gurus would have it. 

"It wasn't that an entire generation had suddenly decided to purchase lattes and other frivolities at the expense of their financial futures...The problem was the fixed costs, the things that are difficult to cut back on," Olen also said.

"Housing, health care, and education cost the average family 75 percent of their discretionary income in the 2000s. The comparable figure in 1973: 50 percent. Indeed, studies demonstrate that the quickest way to land in bankruptcy court was not by buying the latest Apple computer but through medical expenses, job loss, foreclosure, and divorce," Olen stated in her book.

She suggests that when you're living a financially responsible life-- paying the lowest rent possible, opting out of expensive cable, investing and saving money from your paycheck--you don't have to guilt yourself over the little things and you can, in fact, indulge.

Fore more on all things finance be sure to check out our new project CBN News Moneywise – a podcast about faith, finances and everything in between. It launches June 17th and you can learn more about it by checking out Caitlin Burke CBN News on Facebook.