The 1% rule helps control impulsive spending

Arbitrarily buying something you didn’t plan on in the first place can be both enjoyable and satisfying. But that emotional surge can be fleeting, leaving you with purchases you don’t really need, don’t really need, or even use.

If you’re trying to control your impulse purchases, you might consider trying the “1% Rule” when it comes to spending money. This is a rule devised by Glen James – Australia’s leading financial analyst and financial presenter – after he went to a department store with some friends and ended up buying an Apple. Watch for $1,300.

“When I woke up the next morning, I regretted that I really wasn’t going to buy a watch that cost more than a thousand dollars,” James recalls.

The 1% rule works very simply. When the item you want to purchase exceeds 1% of your total annual income, you must wait a day before buying it. This rule applies to discretionary spending, for things you want but don’t need, be it new sneakers, the latest game consoles, or pretty electronic accessories that are “hot trend.” on social media…

In the meantime, ask yourself: Do I really need this? Can I buy it? Will I really use it? Will I regret it? If, after a good night’s sleep, you still think it’s a good idea, then go ahead and make a purchase.

Let’s say your annual salary is 200 million dong and you want to buy a turntable bluetooth speaker that is being introduced by many KOLs, priced at 2 million dong. You will need to wait a day before making a decision. Even if your speaker is failing, in fact, you can buy a cheaper speaker model, just need the sound quality to meet your needs without looking too fussy or eye-catching.

For James, the 1% rule became a “guideline” when using money and was very effective for him personally. However, he notes that the above rule applies only to anyone making $200,000 a year or less (about 4.6 billion VND).

“If you’re making $2 million a year, it probably won’t work for you. For the super earners, 1% of their annual salary can generate too much of a cap.” , he added.

Besides, 1% may also be too much for low-income people. In that case, James suggests setting a smaller limit, such as 0.5%. “Whatever percentage it is, it makes sense given your financial situation, needs, goals and priorities,” he said.

Of course, in addition to the 1% rule, there are many other rules to control spending. Many people set a strict limit for themselves that is not allowed to spend more than a certain amount. James’s rule above is like a “mental checkpoint” – a reminder to think before you act and to set boundaries for when to consider spending.

“Maybe you want to save money to buy a house or retire early. So if you can limit your spending, you can save money and reach your goals faster,” James said, emphasizing that Winning in personal finance often starts at the counter or online payment page.

The 1% rule is not for everyone. Just remember that the best strategies for managing your money are those that are simple enough to stick with for years to come.

Xiao Gu (according to CNBC)