Like most couples, my wife and I used to fight about money. Either I was complaining about her spending, or she was complaining about my spending. Actually, I used to do more of the complaining, but marriages are about equality, so who’s counting, right?
But that was a long, long time ago. Now, my wife and I think it’s ridiculous when we see or hear other couples fight about money. Don’t get me wrong – we fight about a lot of things. Just not money. Actually, let me correct that. My wife yells at me a lot. Then I grovel and apologize. Is it still called fighting when one side utterly and completely surrenders?
Why We No Longer Fight About Money
According to this article, between 33% and 45% of couples say the biggest source of conflict in their relationships involves money. Think about that for a second. There’s an infinite number of things that couples can fight about. Like infidelity (not me), chores, parenting styles, personal hygiene, leaving the toilet seat up, etc. Yet the biggest source of conflict has something to do with money. That really highlights where everybody’s priorities lie.
The 0.1% Rule
Like I was saying before, my wife and I haven’t had an argument about money in ages, and hopefully it’ll stay that way. Our secret to being finance-argument free boils down to three reasons:
- We’re both frugal. It helps a lot that we’re on the same page. That’s not to say that we don’t have disagreements about money. She likes spending money on clothes and shoes (so cliche), even though I think it’s frivolous.
- We’re fairly well off. Obviously, if you’re living paycheck to paycheck, you’re probably going to have a lot more fights about money. If you are living paycheck to paycheck, think about getting a side gig, going back to school, saving with coupons, or ditching your cable bill.
- The 0.1% rule. Basically, neither of us needs to get approval for purchases under 0.1% of our net worth.
Let’s assume you have a net worth of $100k. 0.1% of $100k is $100, so you and your spouse don’t need to get approval for any purchase under $100. If you have a net worth of $1,000,000, you don’t need to get approval for any purchase under $1,000. If you have a net worth of $10,000,000, maybe you should be giving me advice instead of the other away around.
Spending Grows With Net Worth
The beauty of this rule is your ability to spend increases as your net worth increases, so you don’t feel like you’re denying yourself the ability to splurge when your wealth grows. Second, it gives you more incentive to increase your net worth. The higher your net worth, the larger your purchases can be without getting approval, like expensive shoes, video games, or a new set of golf clubs.
But the best part of this rule is that spending at this level is sufficiently low enough so as to not impact your ability to grow your net worth, assuming you’re somewhat responsible with money.
The 0.1% Rule in Action
Again, my wife and I are both generally frugal. But I have my hobbies that my wife thinks are stupid, and vice versa. This rule lets us make purchases that matter to each of us separately, without starting an argument.
Let’s use the example of a couple with a net worth of $100k, with 50% of their money in cash, and 50% in stocks. If each person were to make a 0.1% rule purchase each month, they would each spend $1,200 a year, or $2,400 in total. 2.4% of your net worth sounds significant, but remember, your money GROWS. Current online savings accounts offer rates as high as 1.5% right now, so the $50k in cash would earn $750 a year. The stock market has returned around 11% over the past 30 years. But let’s be conservative and assume a 6% return. This means your brokerage account should earn around $3,000 annually. In total, your net worth should increase by $3,750, over 50% more than the $2,400 you’re spending on discretionary purchases.
Restraint is Key
This will only work if both people are responsible about spending. If one person or both people are hitting the 0.1% cap every week, you’re spending well beyond your means. 52 x 0.1% equals 5.2%. If both people are spending this much, you’re spending over 10% of your net income! But let’s be honest: if you’re spending this much on discretionary purchases, you probably don’t have much net worth to begin with, and there’s nothing that’s going to save this type of couple from arguing about money.
What If I Have No Net Worth?
The 0.1% rule only works if you have a positive net worth, because 0.1% of $0 is still $0. If you only have a net worth of $10,000, 0.1% means you can only make purchases of $10 without getting approval.
It sounds ridiculous that you would need to get approval from your significant other for any purchase over $10, but the rule doesn’t mean you can’t spend more than $10. It just means that you need to make sure you’re both on the same page for purchases over this amount, or else you could be putting your net worth at risk.
How about the 0.0% Rule?
Obviously, the less money you spend, the better. Your net worth is definitely going to increase more if you follow the 0.0% rule. However, the point of having money is for a) financial freedom, and b) to enjoy life.
If you want to be happy, you need to have both. Also, think of this spending as a cheaper alternative to divorce. According to this article, the average cost of a contested divorce is $15,000-30,000. That doesn’t include the higher cost of living when you’re no longer sharing a home, and losing half your net worth to your spouse. When you compare it to a potential divorce, maybe spending some of that net worth to avoid arguments isn’t such a bad idea?