{"id":296425,"date":"2025-07-27T17:35:15","date_gmt":"2025-07-27T17:35:15","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/296425\/"},"modified":"2025-07-27T17:35:15","modified_gmt":"2025-07-27T17:35:15","slug":"how-one-rule-can-simplify-your-spending-decisions","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/296425\/","title":{"rendered":"How One Rule Can Simplify Your Spending Decisions"},"content":{"rendered":"

On this episode of The Long View<\/a>, Nick Maggiulli, author, blogger, and chief operating officer and data scientist at Ritholtz Wealth Management, discusses why net worth is key when it comes to financial planning, why money can\u2019t buy happiness, and lessons from his new book called The Wealth Ladder: Proven Strategies for Every Step of Your Financial Life.<\/p>\n

Listen to the full episode of The Long View: Nick Maggiulli: Climbing the Wealth Ladder <\/p>\n

The author and blogger discusses how financial priorities should change with income and net worth, the money\/happiness connection, and why deciding how to spend is just as important as deciding how to invest.<\/p>\n

\"Image<\/a><\/p>\n

Here are a few excerpts from Maggiulli\u2019s conversation<\/a> with Morningstar\u2019s Christine Benz<\/a> and Amy Arnott<\/a>.<\/p>\n

How One Rule Can Simplify Your Spending Decisions<\/p>\n

Christine Benz<\/b>: You share what you call as the 0.01% rule. Can you talk about what that is and how it can aid with decision-making about doing spending, and what expenditures to stress out about and which to not stress out about?<\/p>\n

Nick Maggiulli<\/b>: Yeah, so the 0.01% rule basically says that you can spend 0.01% of your wealth or just another way of looking at it\u2019s one-10,000th. So you could call this the one-10,000th rule as well. You can spend one-10,000th of your wealth on a daily basis without having to worry about anything. And so I\u2019ll explain where that comes from. So let\u2019s say your net worth is $10,000. You\u2019re basically right on the cusp between level one and level two. That means you can spend an extra $1 per day without any worry about jeopardizing your future wealth. And where that $1 that 0.01% comes from is, on an annualized basis, if you\u2019ve got a return of 0.01% a day, that\u2019s like a little bit under 4% a year. It\u2019s like 3.7% a year. It\u2019s very conservative return. So every day your wealth is generating that much money.<\/p>\n

So if you have $10,000 in wealth every day in theory, you\u2019re generating an extra $1 a day without doing anything. So in theory, you could spend that $1 and not jeopardize your future wealth. So if you have $100,000 in wealth, you could spend $10 a day. If you have $1 million in wealth, you can spend $100 a day, et cetera. Now, obviously this isn\u2019t your total spending. If you live in the United States, you\u2019re not going to survive on $1 a day. This is the marginal spend. Everyone\u2019s making a spending decision, you\u2019re making it on the margin.<\/p>\n

Like when you go to buy a car, you\u2019re not saying, oh, should I get a Toyota Camry or a Maserati? You\u2019re debating between the Camry and the slightly nicer Camry. That\u2019s what I\u2019m saying. You\u2019re always doing it on the margin. Like when you sit down in a restaurant and you\u2019re like, do I want to get the burger for $20 or the salmon for $30? That marginal difference is $10. And so my argument is that once you have like $100,000 in wealth, that extra $10, you can spend that every time you go to a restaurant without worrying about it. And so the 0.1% rule works in that way by just it allows you to have some lifestyle creep because you\u2019ve shown financial disciplines. Like, hey, look, I\u2019ve reached this level of wealth so I can now spend more in certain categories. But until I reach that level of wealth, I\u2019m not going to do that.<\/p>\n

And so like in my example\u2014I still to this day, I don\u2019t have basically any travel freedom. When I go to a restaurant, I\u2019ll buy whatever I want. I don\u2019t care. But I am still getting the coach seat. Maybe I will upgrade my seat to a slightly nicer seat, not a first-class seat, but I\u2019ll go like get something with more legroom. That\u2019s where I\u2019m at in my wealth journey. Like one day if I do well, if things go well for me, I will maybe always get a first-class seat, but that\u2019s not in the cards for me right now. And so I\u2019m spending according to my wealth level, and I\u2019m very strict about that. It\u2019s because that the extra whatever $100 or whatever it is, is not enough to upgrade to first class every time. So I can\u2019t spend that money. That\u2019s how I work through it.<\/p>\n

Why Housing Is More of a Consumptions Good Than an Investment<\/p>\n

Amy Arnott<\/b>: You also write that housing is really a consumption good and not an investment. Why is that? And are there any levels where housing is more important in building wealth and getting to the next level?<\/p>\n

Nick Maggiulli<\/b>: I think housing is important for most Americans because it is the primary way in which they build wealth, even though it is a consumption good. But when you pass on and you pass that property on to the next generation, that\u2019s when it becomes a nonconsumption good at that moment of time. So if you assume, oh, I have children, they have their own house already. When you pass and you pass on your property, that\u2019s the moment when it\u2019s no longer a consumption good. Now it\u2019s an asset for your family. So it really depends on when. It\u2019s like when you\u2019re thinking about it throughout your lifecycle. Like, yeah, for you, it\u2019s a consumption good, but for your offspring and so on, it won\u2019t be a consumption good. So I think primary residence is, once again, the homeownership rate is still like 66% or something like that in the US. Most households have a home. I don\u2019t expect that to change in any drastic way. It\u2019s going to be anywhere between 60% and 70%, probably throughout the rest of my life.<\/p>\n

And it is a way to build wealth because you own this thing, the property prices don\u2019t change too much. I know in recent years they\u2019ve gone up a ton, but I don\u2019t expect them to move a lot for a host of reasons. There\u2019s, what do we call it, a Nimbyism or whatever, people preventing other houses from being made, and so on. I don\u2019t expect major changes in-house prices going into the future. Does that mean that they\u2019re going to keep growing at the same rate? No. And so we could get into a discussion about the future real estate prices, but generally it\u2019s been a pretty stable asset class. And I think there\u2019s a lot of entrenched political and cultural reasons why it will remain a relatively stable asset class. Now, does that mean it\u2019s going to beat the stock market or whatnot? I have no clue. That\u2019s why I say you got to diversify.<\/p>\n

How People With High Income and Low Net Worth Can Fall Into an Overspending Trap<\/p>\n

Benz<\/b>: So you write in the book that people can get into overspending trouble if they have high incomes but not necessarily high net worths. But you point out that income can be fickle. So you believe that people should use their net worth to guide how much they can reasonably spend. Can you talk about that?<\/p>\n

Maggiulli<\/b>: So they\u2019ve done studies on negative income shocks among US households and something like 10% of households are going to see a 50% or greater decline in income over the next two years. So like one in 10 households are just going to have a massive hit to their income in the next two years. And what does that mean? Usually most households are two income-earners. All that just means is one earner is going to lose their job in the next two years. It\u2019s not unreasonable that one person might lose their job in two years, right? So one in 10, that is. So because of that, that\u2019s why I think income is fickle. And more importantly, among higher earners, negative income shocks tend to be persistent. So in other words, if you have a very high-paying job and you lose it, I wouldn\u2019t expect to get back that old income you had, that higher income anytime soon. And trust me, I have friends where this has happened, like, oh, I lost my high-power job doing this. And I got another job, but I took a 40% pay cut or I took this.<\/p>\n

It\u2019s like almost starting, unless you can get a job right away back in the exact same role you were doing, it can be tough for people. So that\u2019s why I think you have to spend based on wealth, not income, because as volatile as wealth can be, it is far less fickle than income. Wealth has a little bit more staying power. Of course, there\u2019s things like the Great Depression where wealth dropped off a cliff quickly, but that\u2019s usually not the case. And so your wealth will be a lot more stable than your income will be over the long haul.<\/p>\n","protected":false},"excerpt":{"rendered":"On this episode of The Long View, Nick Maggiulli, author, blogger, and chief operating officer and data scientist…\n","protected":false},"author":2,"featured_media":296426,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,474,2499,16,15],"class_list":{"0":"post-296425","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-personal-finance","11":"tag-uk","12":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114926408461537877","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/296425","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=296425"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/296425\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/296426"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=296425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=296425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=296425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}