WSJ: On the Fence About a Spending Decision? Try the 0.01% Rule

WSJ: On the Fence About a Spending Decision? Try the 0.01% Rule

The Wall Street Journal Personal Finance column presents the 0.01% rule for frivolous spending.  I’m not sure it helps.

if the amount of money at stake is 0.01% or less of your net worth. Someone with $500,000 in wealth could spend $50 worry-free, according to the rule.

In financial matters, the rule leans on the premise that you should not sweat the small stuff.  The small stuff is defined as 0.01% of your net worth.  Divide your total equity by 10,000. 

If your house and all your other stuff is worth more than a half-million dollars, just buy that mahogany DC-3.  Don’t spend the time or brain space to worry about it.

The concept is ludicrous because it’s based on a rap lyric from Jay-Z.

What’s 50 grand to a motherfucker like me?

The author looked it up, and found that Jay-Z had a net worth of a half-billion dollars.  Jay-Z now has a net worth of 2.5 billion dollars, so the rule must be working.

That’s it.  The author wrote a book and the journalist wrote a column for the WSJ, based on a rhetorical question asked in a song called, Niggas in Paris, by Jay-Z and Kanye West.

It’s worth considering whether an expense is worth the time and mental effort.

Prolific conservative author William F. Buckley had a chauffeur to take him to his office in New York City every day.  He would occasionally get chided by colleagues for his extravagant practice.  Buckley explained that he could work during the commute, and that more than made up for the expense.

That makes sense.  People use the same justification for hiring someone to clean the house or mow the lawn.  If the person is engaged in a more profitable task, than it isn’t frivolous.  If the person is spending the time scrolling through social media, then that’s just sloth.  That’s not to denigrate sloth, just be honest about the choices being made.

The problem with the 0.01% rule is that the concept is used against the consumer.  I am in the market for a new truck.  The base price for a Toyota Tacoma is $29k.  That’s real money.  Every trim or performance upgrade is a couple of grand. 

The customer starts at $29k for shiny.  What’s another $2k to get convenient?  Another step up to get cool, then comfortable, then fun, and the customer is ready to drive away with a Tacoma  TRD Pro for $66k.  Before you go, let’s talk about two hundred dollar floor mats.

In 2013, Netflix was $8 per month.  That’s nothing.  By 2022, it was $15.50.  Each price change was a buck or two.  I didn’t cancel Netflix because my net worth was less than $160k.  I cancelled Netflix because I rarely used it.

The 0.01% rule undermines spending discipline and value.  A homeowner with a conventional mortgage probably has a net worth of at least $50k, so stopping at Starbucks every morning for a coffee is automatic.  A Keurig costs a hundred bucks, and saves over a thousand dollars per year.  A thousand dollars ain’t nothing, unless you have ten million bucks squirreled away.

The 0.01% rule seems arbitrary, but it could still become a rule-of-thumb.  Conventional wisdom doesn’t replace thinking about your particular financial situation and the value placed on purchases.  The old wisdom is, “Watch the pennies, and the dollars will take care of themselves.”