The 0.01% Rule: How to Stop Overthinking Small Money Decisions
What’s your rule of thumb when it comes to spending? What’s your heuristic for choosing between two products? Photo by Kostiantyn Vierkieiev on Unsplash.
Reading time: 6 minutes
Quick answer: The 0.01% rule is a simple spending filter. If a discretionary purchase costs less than 0.01% of your investable net worth (divide by 10,000), it’s unlikely to matter financially and usually isn’t worth overthinking.
What you’ll get from this article
✔ A clear definition of the 0.01% rule (with examples)
✔ How to calculate it correctly (and what to exclude)
✔ When the rule helps—and when it backfires
✔ How income, portfolio size, and lifestyle creep interact
✔ A practical way to reduce money-related decision fatigue on the path to FI
TL;DR — The 0.01% Rule
🧮 Divide your investable net worth by 10,000
📉 Below that level, decisions are lost in portfolio noise
⏳ The goal is saving mental energy, not spending more
⚠️ Not for daily habits or recurring expenses
🎯 Best used once systems—not willpower—are in place
If you just wanted the number, you’re done. If you want the reasoning—and the most common traps—read on.
The 0.01% Rule: How to Stop Overthinking Small Money Decisions
If you’re financially responsible, saving and investing consistently, yet still feel mentally drained by everyday spending decisions, this article is for you. The 0.01% rule is a simple decision framework that says: if a discretionary purchase costs less than 0.01% of your investable net worth, it’s not worth overthinking.
In practice, that means dividing your portfolio by 10,000 and using the result as a mental cutoff for low-stakes decisions. This article explains exactly how the rule works, why it’s tied to portfolio volatility, who should (and shouldn’t) use it, and how to apply it without undermining your path to Financial Independence (FI).
What Is the 0.01% Rule—and Where It Comes From
The 0.01% was popularized by Nick Maggiulli in his book The Wealth Ladder. Although it sounds like a rule of thumb that may be grounded in precise mathematics, it really comes from behavioral reality. The rule emerged from observing how people who already care deeply about money often end up exhausting themselves on decisions that don’t materially affect their financial outcomes.
Suffice to mention that I fall squarely in this category, and that my spending behaviour could have benefited from this simple rule of thumb. For many years, especially early on my FI journey, I price-compared nearly every purchase—no matter how small. That discipline made sense early on, when our net worth was low. But as our portfolio has grown, the habit of checking every expense has outlived its usefulness.
The 0.01% rule has helped me recalibrate: if a choice saves time, reduces friction, or meaningfully improves comfort, and falls below the threshold, then I move on without guilt. I don’t second-guess my choice—there are more important things to do.
This rule emerges as a response to decision fatigue, not a new budgeting framework. Should we drain our energy at the supermarket thinking of whether to buy the more expensive avocado versus the cheaper one, whether to pay the €20 fee per seat that allows us to sit together in the plane, or pay for some low-fee upgrade on some app we use frequently?
A central intuition behind the 0.01% rule is portfolio volatility. If you own a diversified equity portfolio—such as a global index fund—you can expect daily fluctuations of around 0.2% to 1%. This is entirely normal. On a $200,000 portfolio, that means swings of $400 to $2,000 in a single day, driven by market forces completely out of your control. Daily swings of this magnitude are well documented in long-term equity data from providers like MSCI and Vanguard.
Against this backdrop, whether you spend $20 or less on a discretionary choice—0.01% of $200,000—has no measurable impact on your long-term trajectory under this rule of thumb.
This is where the idea of “noise” versus “signal” becomes relevant. Markets are noisy in the short term. Small, isolated decisions below a certain threshold are statistically invisible once filtered through that noise. The 0.01% rule isn’t claiming markets move by that amount daily, only that below this level, your effort has no signal. Buying the expensive or cheap avocado has literally no meaningful effect on your financial outcome, even if you chose the cheap avocado every single week.
The 0.01% rule helps us avoid expending mental energy if it doesn’t have a meaningful financial outcome.
It’s no wonder we feel exhausted—modern life is a constant stream of small decisions. We need simple heuristics—like the 0.01% rule—to help us make better decisions and spend our limited bandwidth on things that really matter. Photo by RDNE Stock project on Pexels.
How the 0.01% Rule Works (and Where It Breaks Down)
How the 0.01% rule works is simple: take your investable net worth and divide it by 10,000. If your portfolio is $350,000, 0.01% equals $35. If it’s $1,500,000, the threshold is $150. The key detail here is what counts toward that number. The rule is meant to be anchored to the part of your net worth that actually fluctuates day-to-day—your income-generating assets.
Your primary residence doesn’t belong in this calculation unless it’s fully used as a rental property. The intuition behind this rule is explicitly tied to portfolio volatility, not to the paper value of assets that don’t move or generate cash flow.
At its core, the 0.01% rule is a decision shortcut for sporadic, low-stakes purchases. It’s meant for those moments that come up a few times a week: deciding between two similar meals at a restaurant, opting for a higher-quality product at the grocery store, or paying a one-time fee to reduce friction or increase comfort. In these cases, the rule helps you decide quickly and move on with your day. Life is simply too valuable for spending too much time on these small decisions.
It’s also important to clarify what the rule is not. It’s not a daily spending allowance or permission to suddenly inflate your lifestyle. It does not apply to recurring expenses like rent, cars, childcare, subscriptions, or travel habits. Some of these expenses can be large and compound over time, and therefore deserve deliberate assessment, comparison, and long-term thinking. These are precisely the areas you do want to spend your headspace on making good financial choices.
A common criticism of the 0.01% rule is that it fails to specify frequency. If someone treats each qualifying expense as “free”, small purchases can quietly accumulate into meaningful sums over time. I think this critique is valid, but reflects a misunderstanding of the rule’s intent. It’s not designed to green-light unlimited spending below a threshold, but to simplify occasional decision that arise sporadically.
Another common question is how income fits into the picture. Two individuals could have the same $300,000 portfolio but vastly different salaries—should they really have the same discretionary spending threshold? Intuition might suggest that the higher earner can afford to care less about a $30 decision, but in practice the opposite may be true. A high income often comes with higher fixed expenses, more lifestyle exposure, and a greater risk of lifestyle creep.
Meanwhile, the lower earner with the same portfolio likely has a higher savings rate and is likely much closer to reaching the crossover point of Financial Independence. Anchoring the rule to portfolio size rather than salary is therefore intentional: it keeps attention focused on wealth already invested, not on income that may feel abundant but is spent already very loosely.
In this light, the 0.01% rule can actually act as a subtle warning for high earners, encouraging them to be especially thoughtful. Imagine a household with a $300,000 portfolio and an annual $200,000 salary. They may be pretty surprised to see their threshold be as low as $30! But relative to their high income, their net worth is really not so impressive—they’re likely still a long way from Financial Independence.
When implemented correctly, the 0.01% rule doesn’t increase spending meaningfully; it only reduces friction. I think remembering the example of the flight seat reservation can serve as a good rule of thumb. Used as a filter for low-stakes moments, it does exactly what it’s meant to—reduce friction without eroding financial discipline.
Of course, when used incorrectly, it can also become a rationalization tool for spending a lot throughout the day. The distinction, again, lies in the intention behind the rule’s implementation: are you using it to protect your attention or to excuse behavior you already suspect isn’t aligned with your desired financial goals?
It’s still useful to remind ourselves that there is no single “right” spending threshold that works for everyone or for all phases of life. Like most financial heuristics, the 0.01% rule works best as a guide rather than a rigid law. Used thoughtfully, it could sharpen judgment and free up headspace.
* Further Reading – Article continues below *
Why Small Decisions Distract Us From Life-Changing Ones
People pursuing Financial Independence rarely struggle because of small spending mistakes. More often, they struggle because their attention is fragmented and misdirected. Many FIRE (Financial Independence, Retire Early) folks spend too much time optimizing over minor changes while leaving major financial levers underexplored. This is not a failure of discipline, but a failure of prioritization.
Consider the financial decisions that truly shape long-term outcomes: in addition to the big three—housing, cars, and food—career-related decisions, portfolio asset allocation, investment fees, tax optimization, or insurance coverage. Many of these items can easily create (or destroy) six figures worth of wealth over a career.
A 0.3% difference in annual investment fees, a poorly structured mortgage, or a decade spent in a role with limited career growth dwarfs the cumulative impact of hundreds of $10 or $20 choices. Yet it is mistakes around high-impact decisions that often receive less attention precisely because they are complex, sometimes uncomfortable, or cognitively demanding. They are the type of decisions that are hard to make when we are lacking headspace.
The 0.01% rule can help correct this imbalance, at least in a modest way. By deliberately simplifying low-stakes decisions, it frees up more mental energy to focus on the few choices that genuinely deserve deeper analysis. It acts as a reminder that not all financial decisions are created equal, and that focusing intensely on the wrong ones can quietly delay progress toward FI in ways we don’t anticipate.
Focus your energy and headspace on the big decisions. Many people don’t negotiate their salary regularly and leave hundreds of thousands of dollars on the table over the course of their careers. Focus on big-ticket items, not on the price of avocados. Photo by Los Muertos Crew on Pexels.
Who Should — and Shouldn’t — Use the 0.01% Rule
I think the 0.01% rule is most helpful for people who already have a solid financial foundation in place: those who already live below their means and save consistently, have an emergency fund, invest automatically at the beginning of the month, track their net worth over time, and still feel persistent friction around everyday spending.
Tightwads, over-optimizers, and financially literate people who know intellectually they are in a good financial position but emotionally struggle to loosen control might benefit the most from this rule of thumb.
Earlier in the financial journey, the rule plays a different role. If your net worth is $50,000, then 0.01% equals $5. in that context, debating whether to order the fancy salmon dish versus the cheaper past dish in a restaurant is not overthinking, but proportionate. But if you already have a $500,000 portfolio, then your threshold is $50 and you should not think for a second about this choice—just go for the salmon.
For habitual overspenders without systems, a lot of caution is warranted with this rule. This is where the risk of lifestyle creep comes into play. Without strong guardrails, repeatedly justifying small upgrades can slowly shift what feels “normal”, even when each single decision seems inconsequential. The 0.01% rule is not meant to normalize higher baseline spending, but meant to reduce friction around occasional choices.
If you’re already struggling with lifestyle inflation and lifestyle creep, this rule could easily accelerate it rather than contain it. In that case, focusing first on intentional spending and habit awareness is likely the better starting point.
When you have all the basics covered and simple heuristics in place—like the 0.01% rule—you can just focus on enjoying life while. Photo by Jessica Rockowitz on Unsplash.
How to Apply the Rule Without Undermining Your FI Plan
The safest way to apply the 0.01% rule is after you’ve removed willpower from the basics. Your savings rate should be defined deliberately, your investing automated so that it represents your first “expense” of the month, and your long-term goals clear. Once those systems are running in the background, the 0.01% rule becomes a tool for reducing friction rather than introducing risk. It helps you decide faster—not spend meaningfully more.
One of the features I like most about the 0.01% rule is that it naturally evolves with your financial progress. Early on at low net worths, it suggests that you do need to pay attention to small decisions. We’ve covered previously that reaching the first $100,000 is often the most difficult, both psychologically but also in terms of effort required.
As your net worth grows, though, the 0.01% threshold grows with it. What once felt indulgent now becomes trivial and not worth wasting mental energy on. This makes the rule particularly useful for someone in the middle phase of the FI journey, where day-to-day sustainability—and enjoying the FI journey—matters much more than extreme frugality.
Finally, the 0.01% rule can clarify the often confused line between being frugal and being cheap. When it comes to gifts for friends, small treats for your children, or shared experiences that strengthen relationships, seeing whether the cost falls well below 0.01% of your net worth can be grounding.
Used thoughtfully, the 0.01% rule doesn’t weaken financial discipline, but allows you to spend more intentionally, without guilt, while keeping your long-term financial goals intact.
💬 Which everyday money decisions still drain your mental energy—and which ones could you safely stop overthinking? If you’re comfortable sharing, I’d love to hear where the 0.01% rule might help you reclaim a bit of headspace. Let us know in the comments below!
👉 Want to understand how to reach Financial Independence in your mid-40s? Check out what savings rate will get you there depending on age and current portfolio size.
👉 Looking to retire a decade or more early? Use our Financial Independence Calculator (free for email subscribers) to plug in your numbers and see how soon you could go into retirement.
🌿 Thanks for reading The Good Life Journey. I share weekly insights on money, purpose, and health, to help you build a life that compounds meaning over time. If this resonates, join readers from over 100 countries and subscribe to access our free FI tools and newsletter.
Disclaimer: I’m not a financial adviser, and this is not financial advice. The posts on this website are for informational purposes only; please consult a qualified adviser for personalized advice.
About the author:
Written by David, a former academic scientist with a PhD and over a decade of experience in data analysis, modeling, and market-based financial systems, including work related to carbon markets. I apply a research-driven, evidence-based approach to personal finance and FIRE, focusing on long-term investing, retirement planning, and financial decision-making under uncertainty.
This site documents my own journey toward financial independence, with related topics like work, health, and philosophy explored through a financial independence lens, as they influence saving, investing, and retirement planning decisions.
Check out other recent articles
Frequently Asked Questions (FAQs)
-
The 0.01% rule is a decision framework that helps you stop overthinking small discretionary purchases. If a choice costs less than 0.01% of your investable net worth, it’s unlikely to materially affect your financial future and usually isn’t worth prolonged analysis.
-
Take your investable net worth and divide it by 10,000. For example, a $300,000 portfolio gives a $30 threshold. The rule is tied to assets exposed to market volatility, not your primary residence.
-
It’s roughly one dollar per $10,000 invested. At $100,000 it’s $10; at $500,000 it’s $50. Below that level, individual decisions are usually lost in normal portfolio fluctuations.
-
No. The rule is meant for occasional, low-stakes decisions—not recurring expenses or daily habits. Frequency matters more than the dollar amount.
-
Generally no. Your primary residence doesn’t fluctuate daily or generate cash flow. The rule is anchored to investment volatility, not illiquid assets.
-
Income can be temporary and easily absorbed by lifestyle inflation. The rule intentionally focuses on wealth already at risk in markets, not cash flow that feels abundant.
-
Yes—but often as a warning. High income paired with low net worth usually signals high fixed expenses or low savings rates, where bigger financial decisions matter far more.
-
If misused, yes. Treating it as permission rather than a filter can normalize higher spending. That’s why it works best alongside strong saving systems.
-
People without automated savings, high-interest debt, or spending awareness should focus on fundamentals first. The rule assumes discipline already exists.
-
By reducing mental friction around small decisions, it preserves energy for high-impact choices—investing, career leverage, housing, and long-term planning.
Join readers from more than 100 countries, subscribe below!
Didn't Find What You Were After? Try Searching Here For Other Topics Or Articles:
<script>
ezstandalone.cmd.push(function() {
ezstandalone.showAds(102,109,110,111,112,113,114,115,119,120,122,124,125,126,103);
});
</script>
