Video Transcript
Over the years I found that managing our money takes balance when you spend too much money you can have these feelings of shame or regret. On the other hand if you choose to just not spend any money at all on the things that you enjoy it can make you burn out and then you just end up spending that money anyways or probably even more and oftentimes it just destroys your budget.
So the question that we have to ask ourselves is how we find the right balance between these two extremes and I think the answer might be the one percent spending rule.
I learned about this rule from Glen James he hosts one of Australia's top finance podcast called my millennial money and when we were speaking Glen told me that he came up with this rule after a trip to the mall ended with him buying a 1300 apple watch and so after dealing with the inevitable regret and stress that we all feel after spending way more money than we know we should have Glen put together this rule this one percent rule and here's how it works.
If you spend money on something and we're talking about a non-necessity something that you don't have to buy, you just want to buy and the cost of that item is more than one percent of your annual income before taxes you have to wait at least 24 hours before buying it and so what this means is if you make forty thousand dollars a year, a four hundred dollar purchase would trigger the one percent rule.
If you make seventy thousand dollars a year your threshold will be seven hundred dollars and now if these numbers are too high for you can change things up you can make it the half a percent rule by cutting those amounts in half and so if you make forty thousand dollars a year, a two hundred dollar purchase would trigger that rule and you just need to remember with all these tips and tricks it's not set in stone.
The point is to make this work for you now here's an important part of all of this during this 24 hour waiting period you have to ask yourself three questions:
- Do I really need this?
- Can I afford it?
- Will I actually use it?
This reflection is arguably the most important part of all of this because this might be the point where you actually talk yourself out of buying something that you didn't even care about but if after a good night's rest and you've given yourself that 24 hour break to think about this. If after all that time has passed and you still feel like this is a good purchase to make, go ahead and make it. Don't have any feelings of regret or shame about this at all because you have to keep in mind we all work very hard for our money and it’s okay to spend it.
So the next time you find yourself tempted to buy something pretty pricey give the one percent spending rule a try and let me know how it goes.
