Buzz
To reduce impulsive buying, many adopt a '24-hour waiting' policy on large purchases. However, the term 'large purchases' is often vague, making the rule impractical. The 1% spending rule provides clarity: You only need to wait a day before buying items that exceed 1% of your annual salary. Here's how it works and why it might be beneficial for your finances.
What does the 1% spending rule mean?
As reported by CNBC, the rule was introduced by Glen James, the host of the Australian finance podcast My Millennial Money. It states that when purchasing a non-essential item like a new pair of sunglasses or a watch, you must wait 24 hours if the item costs more than 1% of your annual gross income (e.g. $300 for a $30,000 salary).
The 24-hour waiting period serves as a cooling-off phase, allowing you to reflect and ask if the initial dopamine high from impulsive buying influenced your decision. However, this rule only works if you consistently follow it, which can be tricky for smaller purchases. For instance, if a friend invites you to a movie, are you really going to wait a full day to think about it just because it's a non-essential expense?
The 1% rule offers a more practical method, with clear boundaries that can help prevent overspending. Plus, it’s easy to recall—if you earn $50,000 after taxes, you’ll know that $500 is your 1% limit. Even if you reconsider a purchase just once (and challenge yourself to do so), the rule will have saved you money.
A few exceptions exist: It works best for people making less than $200,000, those with manageable debt, and individuals who already track their monthly spending on non-essentials (since small purchases can accumulate and lead to overspending). Of course, it’s flexible, and you can adjust the rule to fit your specific needs. As Glen James says: “You could change it to the 0.5% rule. Whatever the percentage, it should make sense based on your financial situation, needs, goals and priorities.”
