The 0.01% Rule: A Simple Guide to Sustainable Spending

Have you ever wondered how much you can safely spend each day without jeopardizing your financial future? While many are familiar with the well-known "4% rule" for retirement withdrawals, there's now a new, easy-to-remember strategy making the rounds in personal finance circles: the 0.01% Rule.

What Is the 0.01% Rule?

The 0.01% Rule states that you can spend up to 0.01% of your net worth every single day. Multiply your net worth by 0.01%, and that's your daily spending limit. Over the course of a year, this adds up to spending about 3.65% of your net worth, making it slightly more conservative than the traditional 4% rule.

Example:

• Net worth: $500,000
• Daily spending: $500,000 × 0.01% = $50
• Yearly spending: $50 × 365 = $18,250
• Annual withdrawal rate: 3.65%

Why Use the 0.01% Rule?

1. Simplicity: No need for complex spreadsheets or annual recalculations—just check your net worth and do a swift multiplication to get your number.

2. Scalability: As your net worth grows, so does your spending allowance. This means raises, investment growth, and windfalls all translate into a little extra freedom.

3. Flexibility: Unlike annual or monthly budgets, this rule gives you a dynamic daily benchmark, ideal if your spending patterns fluctuate.

Assumptions and Considerations

• Your investments should ideally return at least 3.65% annually after taxes and inflation to maintain or grow your wealth.
• If markets dip, your net worth drops, leading to a temporary decrease in discretionary spending—effectively building in a buffer against overspending.
• This rule is most useful for those who want a sustainable, long-term way to manage withdrawals, whether in retirement or in financial independence.

The Math Behind the Rule

The calculation is straightforward:

Daily Spending Limit = Net Worth × 0.0001

Multiply this by 365 to see your yearly drawdown rate:

0.01% × 365 = 3.65%

How Does it Compare to the 4% Rule?

The classic 4% rule has been a retirement-planning standard for decades, suggesting you can withdraw 4% of your investment portfolio per year, adjusted for inflation, without running out of money for 30+ years. The 0.01% rule (annualized to 3.65%) is slightly more conservative, which can add some extra safety margin—especially valuable in uncertain markets.

Practical Tips

• Automate: Consider setting daily budgets or automatic transfers based on the rule.
• Recalculate: Net worth doesn't need daily recalculating; updating monthly, quarterly, or yearly works for most.
• Stay Mindful: Remember, this is a guideline—it should fit your lifestyle and goals, not constrain meaningful experiences.

Calculate Your Own Numbers

Want to explore how this method would look for your own finances? Use our compound interest calculator to model different scenarios and see how your net worth might grow over time. You can then apply the 0.01% rule to understand your sustainable daily spending at various wealth levels.

Final Thoughts:
The 0.01% rule offers a balanced, flexible, and conservative approach to spending. It ensures your lifestyle scales with your wealth—while keeping your financial foundation strong for the long haul.