Spontaneously buying something you hadn't planned on purchasing can be both fun and emotionally gratifying. But that emotional rush can be fleeting, leaving you with unbudgeted purchases you don't really need or use.
If you struggle to keep your impulse buys in check, consider trying the 1% rule for spending money, which aims to minimize bigger impulse purchases that you might regret.
The rule comes from Glen James, host of the Australian finance podcast, My Millennial Money.
The way it works is simple: When something you want to buy exceeds 1% of your annual gross income, you have to wait a day before purchasing it. This rule applies to discretionary spending, for things you want but don't need, like new sneakers or the latest gaming console.
Say you want a PS5 selling for $800. If you make $50,000 per year, it would exceed a 1% cap of $500. In that case, you'd have to wait a day before making the purchase.
The 24-hour cool down period provides time to re-think the purchase. If you really want it, what harm is there in taking an extra day to think about whether you truly need it?
The 1% rules works best if you make less than $200,000, and your debt payments are manageable already, according to James. And if a 1% cap feels too high, you can limit yourself to half a percent or a quarter of a percent instead.
Whatever limit you choose, have a pre-set idea of how much you can spend before you go shopping. If the rule helps you avoid an impulse purchase — even just once — you'd be saving up to 1% of your income.
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