The Power Of The Latte Effect: Pros and Cons


In this article, we will explore more about the concept of “The Latte Effect.

Do you ever find yourself wondering where all your hard-earned money disappears to each month?

Are you searching for a way to regain control of your finances and save more effectively?

This article will explore more about the concept of “The Latte Effect”. I have been more conscious about my personal finance in 2022 and since then, I have read about different money management strategies like the 50-30-20 rule, budgeting to zero and many more. As someone who takes coffee almost every single day, The Latte Effect definitely caught my attention.

In this article, we will discuss how The Latte Effect can positively impact our financial well-being and also reasons why the Latte Effect might not be as helpful as it’s often portrayed.

Understanding the Latte Effect

The Latte Effect, as popularized by David Mach, suggests that small daily expenses, such as buying a latte, can add up over time and have a significant impact on our finances.

The concept is simple but powerful: by closely examining our spending habits, particularly small pleasure items like that daily cup of coffee, we are able to save so much more over time.

Lets use my daily coffee consumption as an example:

Just to share: A hot coffee at my house’s coffeeshop costs S$1.10 while coffee at my workplace area costs S2.00!

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Lets calculate with the understanding that I work at office 5 days a week.

Over a week (5 days), S$2 x 5 days = S$10

Over a month (4 weeks), S$10 x 4 = S$40

Over a year (52 weeks), S$10 x 52 = $520

In the course of a year, indulging on little pleasures daily can compound to large amounts, impacting our finances.

While I do agree to the idea that small expenses can accumulate, it’s essential to analyze the not so good stuff about this concept.

The cons of the Latte Effect

Lesser focus on big ticket items – While the Latte Effect emphasizes cutting back on small daily expenses, it often overlooks larger financial purchases that have a more substantial impact on our finances. For instance, saving a few dollars on lattes won’t compensate for those medical bills, housing or wedding costs.

Deprived on quality of life – By depriving oneself of small pleasures, it may lead to a lower quality of life. Sometimes when we are stressed up in work, we need the coffee to relaxed for a bit, before going back to our tasks. Drinking a hot coffee during a cold weather is taste even better and we want to have that “shiok” feeling of warming our body through that coffee. Life comes with its challenges and occasional treats do bring in more good than harm 🤗.

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Feeling stressed out over money – By over focusing on cutting down small expenses, we can become over sensitive towards spending money. We start to feel guilty for small indulgences which creates unnecessary stress and self-blame. Moreover, this could even lead to a negative mindset with money.

Importance of finding a balance

Rather than being too fixated on the Latte Effect, a more balanced approached to person finance can yield better results.

Everyone’s financial situation is unique and what may be a negligible expenses for one could hold different kind of enjoyment.

Here are some tips that could be useful in finding that balance:

Evaluate your financial situation – Do you have large purchases coming up in the near few years? If yes, placing your headspace in lowering those costs would yield more savings as compared to a cup of coffee.

Prioritize your monthly spending – Firstly, a monthly budget varies from month to month. For my example, my parents birthday are in June and I will spend more to bring them out for a meal. So, for the month of June, I will tend to cut down on a few cups of coffee.

Set up your financial goals – By knowing your short-term and long-term goals, you have a more holistic financial plan which allows you to steer the boat in the direction you want. With goals set for yourself, you can track your progress and indulge in those coffee without any worries.

Ramit Sethi, the show host for How To Get Rich in Netflix did share some ideas too:

  1. Extreme frugality isn’t worth it
  2. Focus on what’s important to you and “use your money strategically”
  3. There’s a limit to how much you trim and how far trimming your spending can get you

Concise and powerful pointers, you can read the full article here.

Steps you can take to start on the Latte Effect

  1. Track your expenses – Start by analyzing your spending habits. Use budgeting apps or simply jot down your daily expenses to know where your money is going.
  2. Identify non-essential expenses – Pinpoint areas where you can cut back without significantly impacting your quality of life. It could be daily coffee runs, eating out frequently, or excessive subscription services.
  3. Find alternatives – Look for cost-effective alternatives that align with your goals. Instead of buying expensive coffee every day, consider brewing your own at home or at work. Not only will this save you money, but it can also be a creative and enjoyable experience.
  4. Automate your savings – Set up automatic transfers from your checking account to a separate savings account. Even small amounts add up over time, helping you build a solid financial foundation.


Embracing David Mach’s Latte Effect does helps to boost our savings and improve our financial situation through cutting down on the small expenses. However, it’s not about depriving ourselves of those little pleasures but making conscious financial decisions that steer us towards our financial goals. With the right systems and mindsets for money, we are able to save substantial amounts without being extremely frugal.

Knowing the accumulated costs of coffee over a year is me doing my due diligence, and by making the decision to buy the coffee, is when I have understood my financial situation and I am ok to buy that cup of coffee to enjoy 😎

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Eugene Loh

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