What is your “worry free” spending limit? A cup of coffee? A bouquet of flowers? A restaurant steak? A new golf driver?
When we got to a certain net worth, I recall thinking that anything under $20 or so was basically “free”. That is, even if spent every day, $20 wasn’t enough to materially impact our financial trajectory over the longer term. It was the moment that we could stop spending time cutting coupons and start enjoying the little niceties of life.
Author Nick Maggiulli, tried to calculate the amount of money you can spend worry-free for his book, The Wealth Ladder. He determined that .01% of your wealth is roughly 1/365th of the 4% rule – the annual “safe withdrawal” amount. It’s not a perfect rule of thumb, because some of your money needs to cover the everyday “fixed” expenses of life, but it’s pretty good.
To calculate, just take your rough net worth times .01% or .0001. It’s simple to do. If you have $200K saved, it’s $20. For $500K, it’s $50K. For an every million dollars you might have, it’s multiples of $100. Every day. Spend it without impacting your net worth.
For us, thinking about this figure reframed how we make purchase decisions. We probably spend more time than needed. It seems we’ve been blessed enough that we should be splurging more and worrying less. For others, it may suggest you need to dial back on excessive silly spending.
What does the .01% rule of thumb suggest to you when applied to your situation?
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MrFireStation 
The .01% rule that works out to 1/365th ignores household expenses that never go away including taxes, insurance, food, utilities, home maintenance, transportation and health insurance. Your overall spend rate including non-discretionary items could follow the .01% rule. Discretionary is what is left over after paying the non-discretionary expenses.
We definitely have much more discretionary income now then we have ever had during our life, because we no longer have high education expenses for our children, commuter expenses and are no longer aggressively saving to get ahead. We can easily spend make expenditures in the hundreds without thinking about it. Get tickets in the front rows of concerts. Stay overnight in a nice hotel if the concert gets out late.
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Yes, I noted that it’s not a perfect “rule”, as it doesn’t account for the fixed expenses of life. It would be better applied to discretionary spending. That said, it’s intended to be a “splurge”, not everyday. I’m not honestly sure how much (%) of our spending is discretionary. I’m guessing it’s probably pretty high … maybe even 2/3rds of our total spending? That wasn’t true when we were younger, but we were too busy working & parenting to be splurging much back then!
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On a total income basis, I would peg my at third going to taxes, a third covering household expenses and a third splurging. What exactly is splurging? Does finishing and air conditioning my garage for a better home gym count as home maintenance or splurging?
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I would count that as a splurge. It’s not like you had air-conditioning out there before, right? I am guessing there are a lot of garage gyms in California that are unfinished and without air-conditioning.
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One other comment I would like to add, following this rule when you are young would prevent one from getting where your forum followers are. I see this in action in the grocery store. I load up whatever I want and see others my age walking around with a calculator keeping a running tally because they are worried about exceeding their fixed income.
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Maybe it’s semantics, but I think it would “impact” your ability to get to FIRE, but not “prevent” it. If you are saving 15-20% of your income (we saved more than that) and not splurging constantly, you’d be fine. 100 splurges throughout the year times .01%, only equals 1% shaved off of your nest egg. Yes, that adds up over time, but you have to live your life with some fun, too. 1%? I don’t think that’s an unwise amount on your FIRE journey.
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We are at the stage where we can’t conceivably spend our nest egg within our lifetimes given our lifestyle. Having said that, I am currently on a cruise ship between Hawaii and the mainland and it began in Tahiti.
I don’t call it splurging but the number at which I think twice about spending is much higher than it was years ago. The price of business class to fly to Tahiti to us was not worth it, but spending a half day rate to check into hotel at 0700 vs 1300 was worth the spend.
We freely spend for opera and theater, but we don’t spend money on expensive sporting events, but that is on account of lack of interest not money. I will note that I saw a photo that parking at Dodger Stadium is $80 for the World Series!
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Wow – that sounds like quite a cruise! How many days at sea does it take to go from Tahiti to Hawaii?
I think we are getting to the same point… We can’t outspend our nest egg without some determined “frivolity” efforts. “Freely spending” is a good phrase to describe it.
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We left Tahiti October 15 and arrive in San Pedro November 2. Flights to Tahiti are every other day and we flew overnight October 12/13 arriving at 0530, the next flight from Los Angeles would arrive the morning the ship sailed and we always fly in a day early.
Tahiti is due south of Hawaii which makes for an 8 1/2 flight but only 3 time zones. The geography of French Polynesia was very interesting and some places quite primitive. We took a 4WD truck ride around Nuka Hiva which is a large island with only 3,200 residents. I think they receive a hefty subsidy from mother France.
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That sounds amazing! Thanks for sharing the details. Enjoy the finish!
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