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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
Trevor Lawson: [00:00:00] Welcome to The Retirement With and On Purpose Podcast. I'm your host, Trevor Lawson, and this show is all about helping you not just reach retirement. But truly thrive in it. You've put in the work. Now let's make sure you can enjoy every moment to the fullest.
Today's episode is inspired by a recent article in the Wall Street Journal titled On the Fence about a Spending Decision. Try the 0.01% role so the financial industry has. A lot of different rules that are, that are very catchy. You know, the 4% rule, the 50 30 20 budgeting rule. There's all kind of of rules that have, that are really ingrained in the personal finance world.
But here's one that came across [00:01:00] my radar that's, that's relatively new, but has some potential merit. And, uh, you'll see why as we, as we kind of quote this, this article today. But the source of this rule is Nick. Maoli, I hope I'm pronouncing that correctly. Nick Maoli, and he's the author of a new personal finance book that proposes a way to calculate the amount of money you can spend worry free.
So that 0.01% rule is designed to help you get a better gauge of how much money you can spend, worry free. The rule states quoting here, if you are torn about making a purchase. You don't need to stress about it if the amount of money at stake is 0.01% or less of your net worth. Um, so what does that look like in, in real numbers?
Someone with 500,000 in wealth could spend $50 worry free. According to the rule. Someone with a hundred thousand dollars could therefore spend $10 worry free. [00:02:00] So for those of us, particularly those that are, um, known amongst our family and friends as being, you know, very, very tight, uh, very, very budget conscious, very cheap, this can help you get a better sense of, you know, can I go to Starbucks occasionally and splurge on that, um, that seasonal latte or.
Next time I met Chipotle, can I add guacamole to my bowl? This, this kind of gives us at least a framework to think through in whether or not that that amount of money that is within our worry-free budget. So the rule was created by, again, alter Nick Maggio as a way to approximate what qualifies as a trivial amount of money to someone he described in his book.
It derives from the relatively cautious assumption that someone's assets will have a long-term, real rate of return of a bit under 4% a year or [00:03:00] about 0.01% a day. So that's, that's how this rule came to be, is assuming that our, the growth in our money is around 4% a year, which is, it's historically very conservative.
So I can appreciate this rule even more. 4% a year breaks down to about 0.01% a day. So spending that portion of your net worth one day wouldn't take away from your existing wealth. This rule is again, very, very helpful. Um, I can think of a lot of different examples, but we've got a lot of clients with seven.
Eight figures of, of net worth that will consistently go, you know, to this restaurant instead of this one because they're running a special or will shop at the g this grocery store instead of this one. Uh, because they've got, you know, half priced meat this week, which that habit is why they've been able to build up such a, a healthy net worth.
[00:04:00] But at the same time, it's a very difficult line of thinking to break. Sometimes it's, it's helpful to to live a little more freely and, um, and optimize for, for convenience and peace of mind by, you know, by taking advantage of the, the worry free money that this rule rule creates. So, quoting again, about 15 to 25% of people say they have trouble spending money according to the research by Scott Rick, marketing professor at University of Michigan.
So about a quarter of people say they have trouble spending money. I see this a lot too. With retirees who have, again, spent their whole life kind of working and saving and working and saving. It's a very difficult psychological transition sometimes for someone to go from working and saving to spending and seeing their, you know, their, their savings start to start to the in value because they are, they're now living off their, their savings.
So. The goal again of the [00:05:00] rule is to help people spend less mental energy on relatively small financial decisions. Indeed, Rick said that the frequency of day-to-day transactions makes them loom large in people's mind when they might be better off paying more attention to say how much they put into a child's college savings account.
I think about that once every two years. Rick said him, referring to how much he puts in his child's education savings. I think about DoorDash delivery fees much more frequently. So a lot of, you know, personal finance online, uh, articles or, uh, attention seekers will, will talk about the harms of, you know, splurging on that, that daily trip to Starbucks or going out to lunch too frequently.
And this, now this rule can at least give us a better sense of how harmful that. That splurge may be, um, if it falls within 0.01% of your, your net worth, it [00:06:00] may not be too harmful at all. And again, I think Rick's point at the end here can't be oversight enough. So many of us give a lot of attention to trying to, you know, save on, on gas or, you know, eliminate.
Too many trips to the local coffee shop and eating out too frequently and all that again, is important and really helps at least develop a hobby, or excuse me, a habit for, for saving. But we should give a lot more attention to these larger financial decisions like. How much we're gonna put in our child's education, how much we're going to, to, to pay for a home, you know, what kind of car we're gonna drive.
These have a much more lasting impact on our financial wellbeing than some of these, you know, these, these more frequent decisions on whether or not the DoorDash to debris fee is worth it or whether or not we're gonna add guacamole to our next [00:07:00] Chipotle order. So keep the 0.01% rule in mind next time, um, you're, you're thinking about whether to opt for additional leg room on the plane.
I hope you found this, this enlightening and if nothing else gives you just a framework to to think about next time. You go to make a decision that maybe is designed for, for comfort more so than than nec necessity. This can help you think about whether or not it's, it's going to have an impact at all on your financial wellbeing long term.
As always, take care and I look forward to being with you again soon.
Thanks for tuning in to The Retirement With and on Purpose podcast. I hope you're walking away with new ideas. And a fresh perspective on how to make the most of your retirement journey. And remember, retirement isn't the end. It's your time to live with purpose. Until next time, I'm Trevor Lawson. Here's to a [00:08:00] fulfilling and thriving retirement.