When you overspend, a sense of shame or regret can overwhelm you and even prevent you from achieving your financial goals. On the other hand, not spending on things or experiences that bring you joy can cause feelings of deprivation.

So how do you find the right balance?

As financial advisor, accountant and podcast host Funding for popcorn, I hear about the creative strategies people use to cut spending. One of the favorites comes from Glenn James, who hosts one of Australia’s top financial podcasts, My millennial money.

The 1% spend rule: to buy or not to buy?

During a conversation about how to spend money on things we love without breaking the bank, James told me about his 1% spending rule, which he invented after going to a department store with friends – and ended up buying an Apple Watch for $ 1,300.

“It was a problem because when I woke up that morning I had no intention of buying a watch that cost over a thousand dollars,” said James, who describes himself as a “spendthrift. compulsive”.

So immediately he decided he “needed a way to govern” his spending.

James’ 1% spending rule (not to be confused with the 1% rule in real estate) is simple: if you want to spend on something – a non-necessity – that costs or exceeds 1% of your annual gross income, you have to wait a day before buying. Meanwhile, ask yourself: Do I really need this? Can I afford it? Am I really going to use it? Will I regret it?

If after a good night’s sleep that still seems like a good idea, then go ahead and make the purchase.

Let’s say your annual gross salary is $ 60,000 and you want to buy a rug that costs $ 600 (1% of $ 60,000). We would have to wait a day before making a decision. Even if the rug you have now is worn out, you might decide, for example, that $ 600 is too much, and you could easily do with something cheaper.

This is a good rule “for anyone earning $ 200,000 or less”

“Now the 1% rule is just a guide – it’s simple and really works for me,” James said.

However, he recommends it mostly “to anyone earning $ 200,000 or less” per year. “If you make $ 2 million a year, it probably won’t work for you,” he said. “For very high incomes, 1% of their annual salary may set too high a limit.”

Again, 1% may also be too much for low incomes. In this case, James suggests setting a smaller cap: “You can replace it with the 0.5% rule. Regardless of the percentage, it should make sense based on your financial situation, needs, goals, and priorities. “

Of course, there are other variations of the spending rules, but many have a hard cap (i.e. you are not allowed spend more than $ X on something). James’s version is unique in that it acts “more like a mind control point” – a reminder to think before you act, set limits and identify trigger points.

“Maybe you want to register on buy a house or for early retirement. Earning in personal finance often starts at the store counter or on the online payment page, ”James said.“ So if you can keep those expenses down, you can save money and achieve your goals faster. “

The 1% rule is not for everyone. Remember, the best strategies for managing your money are those that are simple enough to follow for years to come.

Chris Browning is financial expert and creator and host of the award-winning podcast Funding for popcorn. He holds a bachelor’s degree in finance and also works as a financial analyst specializing in income analysis. Follow him on Twitter @PopcornFinance.

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