THE 0.01PC RULE THAT COULD TRANSFORM YOUR SPENDING
Many of us grew up with the money mantra: “If you look after the pennies, the pounds will look after themselves.”
A new spending rule, however, is turning the idea of simply spending less on its head, and instead encouraging us not to “sweat the small stuff”.
The 0.01pc spending rule was devised by Nick Maggiulli, head of Ritholtz Wealth Management and author of the book The Wealth Ladder.
Here, Telegraph Money explains how the rule works, and asks a selection of experts whether they think it’s really got the power to transform your spending.
What is the 0.01pc spending rule?
According to Mr Maggiulli, the 0.01pc spending rule is a helpful way to determine whether you need to worry about a little splurge – whether that’s going for a cocktail before dinner, upgrading to a smarter hotel or booking better seats on a flight.
The idea is that if a little bit of additional spending is worth less than 0.01pc of your net worth, you don’t need to worry about it harming your overall wealth.
Working on the assumption that our assets are likely to have a real rate of return that’s just under 4pc a year, or 0.01pc a day, spending that amount of money now and then isn’t going to have a significant effect on your financial health – so it’s not worth worrying about.
Alice Haine, of the platform BestInvest, said: “The 0.01pc rule offers a simple framework for assessing whether a discretionary purchase is affordable, based on your net worth. In theory, it can help people spend more mindfully by offering a benchmark for what constitutes a ‘reasonable’ expense.
“Put simply, if your net worth is £1m, spending £100 on a non-essential item falls within the threshold and, in principle, shouldn’t be a cause for concern.”
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Does the 0.01pc spending rule actually work?
The experts we spoke to could certainly see why the rule is appealing.
Vix Leyton, consumer expert at thinkmoney, said it’s clever because it encourages us to think about our own personal finances, rather than categorising all spending as being either ‘good’ or ‘bad’.
“With so much noise in terms of what you should and shouldn’t be doing, and tropes around avocado toast and takeaway coffee, the mental gymnastics to give yourself permission to say ‘yes’ to an upgrade can cause more stress than the spend is worth.”
She added: “This rule stops you from worrying about the impact of small decisions, to free up energy for bigger financial choices that actually matter.”
That might mean preserving your energy for reviewing your pension, writing a will, or setting up an investment plan.
However, while the rule might ease the mental load or reduce decision fatigue associated with our small, day-to-day choices, experts agreed that it should be treated with caution.
“It’s a little like being told you can snack as often as you like, as long as each snack feels small enough to justify,” said Lesley Thomas, of The Money Confidence Academy.
“Individually, those choices may seem insignificant, but added together, they can amount to substantial overspending. For someone with deeply ingrained habits or particular behavioural patterns around money, this approach risks normalising frequent, unnecessary purchases.”
She added: “Where I do see a potential benefit is in the way this kind of ‘permission slip’ can help people who are naturally very frugal or anxious about spending. But even here, context matters. One person’s small indulgence is another’s slippery slope, and without self-awareness, the rule can quickly be misapplied.”
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This is where having a proper understanding of your relationship with money is beneficial. You might underspend, overspend, shy away from making financial decisions or tie your self-worth to financial choices.
“Once you recognise your patterns, you’re better equipped to know whether a rule like this will genuinely support you or whether it will encourage unhelpful behaviours,” Ms Thomas said.
Just how well it works might come down to your wealth, too: “The rule probably works better for those on higher incomes, who may find it hard to recalibrate their spending habits as their earnings grow,” said Ms Haine. In that regard, it could be a helpful way of ensuring lifestyle creep doesn’t spiral out of control.
Sarah Coles, head of personal finance at Hargreaves Lansdown, takes a similar view. “The 0.01pc rule would be useful for people with lots of room in their budget and large amounts of assets they don’t need for anything specific, who need to find a way to give themselves permission to enjoy their income. For this very specific group of people, it’s a useful shorthand to stop them overthinking.”
However, she added: “There are some problems with this approach for all sorts of other people. It takes no account of how much space you have in your budget. If your everyday commitments swallow a huge proportion of your income, then giving yourself permission to splurge on nice-to-haves up to a specific level could easily mean you end up dipping into savings.”
It also doesn’t take into account other financial goals you might have – for example, furiously saving for a first home or to send your children to university.
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The question of net worth
Then there’s the conundrum of how to calculate your net worth.
Mr Maggiulli suggested you should not include illiquid assets like property if you’re on a more restricted budget.
However, Ms Leyton still finds the application of net worth to be somewhat of a blunt instrument. “On paper, net worth includes everything – your home, your pension, your savings, your investments, minus your debts. And it is a valuable metric for the average person to understand their overall financial position. But you have to use it appropriately.”
“A high net worth [individual] with low liquidity still requires careful cash management – you can be a paper millionaire and still struggle to pay the bills if it’s all tied up in bricks and mortar. Conversely, a lower net worth with a steady income stream might give you more day-to-day spending confidence.”
For that reason, she would suggest basing your calculation on accessible assets, rather than your house or pension. “You can’t take your house out for dinner, and including it risks giving yourself a false sense of freedom.”
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For example, median household wealth in the UK is just short of £300,000 according to the most recent data from the Office for National Statistics. Using the 0.01pc rule, this would mean a purchase costing less than £30 shouldn’t be a concern.
However, property wealth and private pensions account for around 75pc of the total value, leaving an average of around £75,000 for accessible assets. This would reduce your 0.01pc threshold to £7.50.
You still need to budget
It’s important to point out that the 0.01pc spending rule really does just apply to smaller or trivial expenditures; as Ms Leyton stressed, it doesn’t replace the need to budget or plan.
This is where other “rules” or “hacks” could prove more helpful. “The 50/30/20 rule, for example – where you allocate half your income to needs, 30pc to wants and 20pc to savings – adds a layer of forward planning,” she said.
In this case, the 0.01pc rule spending would come out of the money you’d set aside for the things you want to spend on, safe in the knowledge you’ve already allocated funds to the essentials and saving for the future.
Used in conjunction with a more considered spending strategy, she added, the 0.01pc rule could be beneficial.
“In tandem with a broader mindfulness of money, it keeps your focus where it belongs: on the bigger picture, without making you feel deprived.”
2025-09-27T10:00:43Z
