The Latte Factor: What Are Micropayments Doing to You?

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Cup of espresso and cookie

The Latte Factor is one of the most commonly used phrases in personal finance writing. Championed by personal finance author David Bach, the Latte Factor is the idea that we all have small indulgences (such as $5 lattes) that chip away at our ability to save and invest for a financially secure tomorrow. If we were to save the money that we were spending on lattes, the thinking goes, it would grow to be a tidy sum by the time we retire.

Nowadays, the Latte is not the only thing we can spend our money on. With things such as the Kindle Factor, the App Factor, the iTunes Factor, and the Groupon Factor -– I have to ask: do micropayments make us throw our budgets out of whack?

Looking through a trove of old receipts, I realized that my Latte Factor isn't really about fancy coffee-based drinks (although I am also guilty of spending $5 on those). Instead, my Latte Factor can be more appropriately titled the Lipstick Factor, or Makeup Factor, or Lotions Factor. Whenever I go on my weekly Target run, I pop by the cosmetics aisle and pick up a new tube of lip gloss or a jar of moisturizer. One week it might be Apple Red, another week it'd be Mauve Madness. On a weekly basis, these purchases are not too expensive at $10 to $20 an item. But added up over a month? That's $50. Or a year? $600.

Or perhaps your Latte Factor can be more appropriately titled the iTunes Factor. A friend of mine loves iTunes and its offering of $1 songs. Each song is so inexpensive and so convenient -- iTunes has got instant gratification down! But if you buy a song every day, at the end of the month you would have spent $30.

Movies and entertainment are another area where small payments really do add up. Crystal of Budgeting In The Fun says:

“My husband and I spend about $85 a month on HD cable and a DVR. That's more than $1000 a year on our nightly entertainment. It's probably going to stay in our budget for years to come simply since we do enjoy a lot of TV and it is our main form of entertainment Monday-Thursday nights when we are just too tired to trek across Houston visiting friends for a couple of hours before bed.”

On her blog, Crystal also details the name-brand items that are worth the money for her to keep purchasing.

Amanda Grossman of Frugal Confessions and her husband are avid movie-goers. Amanda says:

“It is something we refuse to give up, even though it ends up costing around $30-$40 a pop after we get hot dogs (how can you watch a movie without hotdogs and a coke?). We go to the movies at least once a month, sometimes 2-3 times.”

Another common micropayment among the technologically savvy is the App Factor. Similar to iTunes songs, the endless array of smartphone apps has exploded over the past few years. Although there are many free apps, even the "premium" apps only cost $2 or $3. Again, peanuts by individual standards, but once you start buying a few premium apps a week, the expenses do add up.

What is the Latte Factor in your life? Do you, like me, share a Lipstick Factor? Or are you more of the Magazine Factor, the Shoes Factor, or the iTunes Factor?

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