Beyond the Latte Factor: More Effective Financial Strategies

By now, we’ve all heard about the Latte Factor—how cutting little expenses that you make on a daily basis can add up to relatively painless and big savings over the year. The only problem with this kind of advice is that it’s worthless. The sorts of people who really do need to save $1250 per year aren’t buying themselves a $5 latte five days a week. So the Latte Factor advice only makes the generally frugal feel bad on the occasions when they do treat themselves to a coffee (or a manicure, or a meal out, or any other small indulgence), and it does nothing to help the bottom line.

Unfortunately, that’s not the only less-than-useful advice out there. There are plenty of articles that claim to give you information to help your finances, but all they do is play with math and ignore the real life circumstances behind the story. So when you see one of these articles, remember to take the advice with a grain of salt—or possibly even a salt lick:

Financial Advice You Should Ignore

1. “These Degrees Aren’t Worth the Money.” I will often see articles enumerating which college degrees are costly without a corresponding high base salary.

While it is certainly good to recognize that a BA in Underwater Basketweaving is unlikely to land you a $100K job, I also can’t imagine who the readers of these articles are supposed to be. No one makes a decision on what to study and what career to pursue solely because of money.

Most people do not choose their majors in college based upon what it will definitively get them in the future. If everyone followed a life plan based on money, we would never again see writers, teachers, poets, philosophers, actors, musicians, etc, etc. And we would all be the poorer for it.

2. “Never Pay Retail.” This is one of many all-or-nothing pronouncements that gets under my skin. While you can certainly save money by shopping around, by looking at the product locally and then buying online, by buying used, by waiting for a sale, by haggling, by making it yourself, and so on, what other costs have you incurred?

It sometimes feels as though people forget that their time is worth money, that quality is worth the price, and that keeping the economy strong means supporting local businesses. I love a deal as much as the next bargain-hunter, but I am happy to pay full price to get a great product, save myself time and aggravation, and foster a relationship with good businesses.

3. “Your House [or any other purchase] Is an Excellent Investment.” Since the housing crisis hit, you’re much less likely to see this bit of advice about homes, but you will still hear pundits telling you that purchasing any number of things—from artwork to jewelry to collectibles to antiques—is worth the purchase price because the objects will appreciate in value.

While it is certainly true that all of these things may end up being worth more than you paid for them, that is no reason to buy a house, a painting, a necklace, or any other object. Make a purchase because you love or need what you are buying. Spending money on things in the hopes that those things will take care of you financially later is a recipe for disaster. You’ll be unhappy while you own it, since it’s not what you really want, and you’ll likely be unhappy when you try to sell it, since there’s no guarantee that it will be worth more money.

While it can be very helpful to read the advice of financial gurus, remember that not every pronouncement will be true for every person—and a dash of common sense can sometimes be more helpful than a mathematical equation that shows how much you can save.

Related Post: How We Manage Our Money on a Daily Basis