The Lambo vs. Latte Effect: How Your Decisions Can Cost You!

Transcript

Let’s move on to Kevin’s question. He says you always talk about the Lambo Effect over the Latte Effect. Does that mean that it’s okay to go out and get coffee every day before work? And can you explain what the Lambo Effect and the Latte Effect are?

Yeah, there are a lot of financial folks out there who say, “Oh, if you would just cut out a coffee a day or cut out a coffee a week or stop going to the local coffee shop, that’s gonna be how you build wealth.” And while there’s some truth in that, right? Like the marginal decisions can add up over time. If I do cut that out and I save that money and I start building, that can be productive over the long term. But what we see in most circumstances with the folks we interact with, the difference between those that build wealth, the difference between those who don’t build wealth, it’s not because they are drinking themselves into the poorhouse through going to the local coffee shop. It’s the big life decisions—the cars that they’re buying, the vacations they’re going on, the homes they’re purchasing—are way too big for their lifestyle. So they are making Lambo decisions, not latte decisions, that are causing them to get derailed.

So Kevin, your question is, “Are you saying that it’s okay if I go out and get a coffee every day?” Maybe it depends on where you are in your financial life cycle. If you’re someone who’s saving 20 to 25 percent, you’re building for the future, and you’re following the financial order of operations, and going out and getting gourmet coffee or having someone else make your coffee is something that you derive value from, that’s okay. Nothing wrong with that. Just like I’m not saying that it’s bad to buy a Lamborghini if you’re a car person and you want to own a Lamborghini and you have the resources and the savings that would substantiate the ability to do that, that’s okay too.

Often, people get that out of whack. It’s the young person who’s not even putting any money in the Roth IRA that’s going to the coffee shop every other day. That’s a problem that could be corrected. Or the young person who says, “You know, I can finance this car for 60 months or 72 months, or I can buy the brand new car instead of the used car.” Those are the kind of decisions we’re trying to get you to avoid, not simply the consumption decisions that may or may not make sense in your circumstances.

I look at this as a triage opportunity. You’ve got to look at your financial life and say, “Okay, let’s prioritize. How do we get you in the best position as fast as possible?” First thing, big decisions—the housing, the car payments. Those are the things that are going to make you, if you buy too big of a house, you’re going to be house rich, life poor. If you buy too fancy of a car, you’re totally gutting your potential to build seven- to eight-figure wealth in the long term. So, I mean, there’s guys we just reacted, and it’s out there. If you go check out any of our feeds on TikTok, on Instagram, on YouTube, where there’s this trend where people have $800 to $1500 car payments, guys, that is literally seven figures from your future self just so you can look cool right now. So those big decisions are killers. That’s why Bo talks about the Lambo Effect over the Latte Effect.

Now, let’s triage because that’s the big thing. That’s essentially like you got an artery cut, and we’ve got to make sure we put the thumb in there to seal it off so you don’t die right there on the spot. The Latte effect is more about you being injured in a way that you’re obviously not in your peak form, and we have to quickly look at your situation. If we find out that you’re not saving and investing 20 to 25 percent for your future, but when we look at your monthly bank statement, we see that four times in the last week you refilled your Starbucks card, you’re like, “Oh yeah, but you guys told me it’s Lambo, not latte.” But yeah, we’re all about doing things that you enjoy, and I’ll come back to that in a second. However, if I see a trend here where you’re not doing what you need to, then I think we need to focus on the death by a thousand paper cuts. In a triage situation, you might find that you’re being slowly poisoned by your behavior. I don’t want you to feel like, “Hey, Brown and Bo said it’s okay, rip and roar. I’ll even buy a few for my friends too.” No, we’re not saying that. We’re saying triage it, make sure you don’t make the big mistakes. But if you’re not doing the right things to get you through the first seven steps of the financial order of operations, then you don’t get that luxury. It’s one of those things where I think if you are saving and investing 20 to 25 percent, that’s the point Bo was making. Now you can do things. So, you know, take a deep breath, buy a nicer car if you so choose. You can do it. You have a lot more freedom because you’ve already set the path for that automatic, inevitable wealth that you’re creating.

So, I do want to close it out with one thing, though, because I think sometimes people don’t understand the value of scarcity but also figuring out what actually gives you purpose and what you love. You know, we’ve been to quite a few conferences and other things, and somebody who does a really good job talking about this is Ramit Sethi. He does a great job at conferences. I’ve seen him. He will have people stand up, and he’ll say, “Tell me what you love, what would you do more of if I could tell you not to worry about money?” Just tell me what you love and what brings you purpose. And for some people, it might be drinking coffee or driving a nicer car. I’m not battling against that. I’m just saying, make sure you do the exercise of knowing what you love, what brings you purpose, and then put that into the context of the financial order of operations so that you are set up in a better place. What doesn’t work is if you’re a person that goes out for coffee, and you’ve done the DNA test or whatever it is that tells you if caffeine has an impact on you or not, and maybe you’re one of those people that caffeine just has no effect on. But you’re out there hanging out, and if you don’t actually get enjoyment from it but you’re still stopping because it’s the social thing to do, you know, get that right. Do the exercise. What brings you joy? What do you like to do? Let’s make sure we ensure the big things like the cars, the houses, and then the death by a thousand paper cuts if you’re still on the journey to achieve that inevitable wealth building.

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