Spoiler alert: It has to do with highly caffeinated monkeys.

A few days ago, we came across a CNBC article from 2018 on “the latte factor” that we had shared with a client who was looking for advice to give his adult son on the power of positive financial habits.

The idea behind the latte factor is that building wealth can be boiled down to eliminating your morning latte. According to self-made millionaire David Bach, “you probably already make enough money to become rich.” The problem he says is that most people throw too much of their money away on tiny little expenditures without realizing how much they could add up to. If these expenses were eliminated and the savings were invested, that money could grow substantially.

I think that logically, this is something we can all agree on. If we didn’t insist on lighting $10 on fire every morning before 7am—ex. buying our beloved coffee shop latte—we’d be able to contribute more to our future goals and possibly reach them faster (and with less effort).

So why don’t we?

Turns out, our minds are all ruled by tiny “instant gratification” monkeys that steer our rational decision-making brains away from what makes sense and toward what feels good now. Or at least that’s the imagery provided by Tim Urban in his TED presentation, “Inside the mind of a master procrastinator.”

Urban’s presentation is both brilliant and entertaining, and brings up some noteworthy points.

• Procrastination doesn’t make logical sense, but we do it anyway
• We know we’d be better off if we did our work ahead of time, but we do it anyway
• We regret procrastinating, but we do it anyway

So what’s the big idea? Why is it so hard to break bad habits like procrastinating, spending too much, and saving too little?

Bad Habits are Hard to Kick Because the Reward Is in the Future

That’s when we stumbled over this on Episode 10 of Dr. Peggy Malone’s Podcast “The Improvement Project”:

“The cost of your good habits is in the present, and the cost of your bad habits is in the future. This is part of the reason why it’s so hard to maintain a good habit because the reward doesn’t come until later. A bad habit, on the other hand is difficult to kick because the reward is right now and the cost isn’t until the future. By prioritizing the present makes bad habit change extremely difficult.”

Turns out, what they say is true: timing is everything. Good habits don’t satisfy the monkey in your brain that wants to be rewarded NOW, so they are harder to stick to. And the effects of bad habits—or costs—aren’t realized until the future, so they are easier to ignore.

For example, if I take a portion of my bonus and invest it now, the cost is that I can’t go buy a new car or new clothes. The reward is realized years from now when it has amounted to something sizeable.

Now flip it. The opposite scenario is I go buy a new car with my bonus, which is the immediate reward in the present, but the cost is that loss of financial security in the future.

The same is true of weight loss and fitness goals. If I decide to skip the cupcakes in the break room and go to the gym instead of spending two hours on the couch, I make progress toward my long-term goal of losing some weight and improving my heart health. I won’t get in shape over night, but if I pay the cost of skipping indulgences and commit to showing up at the gym 3-4 times a week, I will reap those benefits in the future.

The fact that we can’t see or feel the future cost of financial security or looking amazing at your high school reunion is what makes bad habits so hard to kick. Plain and simple, it’s easier, and feels better, to take the easy way out. It’s easier to buy the latte, to eat the cupcake, and to sit on the couch because we can’t fully see or experience the effects of those bad decisions….yet.

What is the Cost?

The best way to combat these bad habits and to create good ones that last is to constantly ask yourself: “What are the costs of this decision?” What are the costs now and what are the costs in the future? Because the future is coming no matter what decisions we make now. It’s just that what our future looks like will be entirely dependent on the things we do today.

Don’t get us wrong. We don’t think cutting out your morning latte is going to make you rich. Eliminating small, regular purchases in unlikely to help you save enough money to become wealthy. And having a cupcake every once in a while probably won’t make you obese.

But, you can dramatically improve your odds of exercising positive financial habits if you focus on the reward that will come from the good decisions you make today. And if we go back to David Bach’s claim that we already have what we need to be rich, then it really just comes down to harnessing our own behaviors and working with an expert to leverage our resources properly to build and maintain lasting wealth.