What if your contract gets terminated? What if you retire early? These are the key questions to ask yourself while on a well-paying job. A person who rarely achieves financial goals spends too much on non-essential things. At some point, people do regret it. People curb their spending in different ways. A financial expert talk about his 1% spending rule.
The Popcorn Finance podcast host spoke to CNBS about how one can use it to save more money. He is an accountant as well as a money advisor in various financial institutions and organizations. Glen James explains it in some ways in his podcast, My Millennial Money.
He says we should only spend money on things that make us happy. He says they were walking with his friend James one day, who brought about the 1% spending rule. Recently, James had bought an Apple Watch worth $1300, which he had not planned to buy. So, we can say he was a spendthrift. After being questioned by his friends, he had to look for perfect ways to govern how he spends his salary.
That is where the birth of the 1% spending rule in finance comes from.
It states that ‘To spend money on non-necessity items whose cost exceeded 1% of the total yearly income, then wait for another single day before purchasing.’
Now the duration between now and the day you will buy, ask yourself if the item is essential. Can you afford the item? Is it necessary to purchase it? Will it be useful in my daily activities?
After finding the correct answer to those rhetorical questions, then make an important decision. If it’s a perfect idea, take the next step and purchase the product. However, if the item isn’t useful according to your decision, then hold on first.
Making quick decisions sometimes comes with a lot of regrets. Some people receive their salary and end up purchasing items without planning. Make some calculations and have your budget aside on how to spend your salary. For example, you might be wearing a tone cloth and decide to purchase another without considering the price. You must question yourself if the new cloth is worth that price.
It’s a good spending rule ‘for anyone earning $200,000 or less.’ Now, that rule works for millions of people who know it. James Glen recommends the rule to people earning below $200000 per annum. Those making up to $1 million per year have great freedom to purchase whatever they want. Those people earning high incomes spend less than people with low incomes. It’s not a rule, but it occurs naturally in some ways.
When James says to people earning less than $200,000, he didn’t mean too low income. If you earn less than $1000, it might not work for you either. But you can calculate your percentage according to the amount of salary you are getting. Let’s say if you are getting less than $100,000, then use the 0.5% rule. Your goals, ambitions, priorities, and financial status will determine the percentage you want to spend on luxuries.
This 1% spending rule acts like a mental checkpoint that automatically reminds you when you want to buy something. It tells you to think twice before acting. The rule sets guidelines and boundaries on your spending habits, the report by the balance.
Saving is a habit that can make you achieve your dreams faster. If you want to be a financially free person, then save for a while and set up a business. Some people prefer buying their home dreams while young, that is also the guide. Early retirement occurs in people due to various reasons like diseases or personal will. Saving accounts and investments can be a great deal for your future life.
You don’t need to follow the James rule. Set up your rules according to what you want to achieve. Simple and strict rules will make it possible.