29 Jun 2022

Making Cents: Have you heard of the 2 X Rule?

Making Cents: Have you heard of the 2 X Rule?

Mindless spending only becomes a problem when you aren’t saving any money at all Picture: Pexels

I RECEIVED an email from a young man recently who asked, how can he stop spending everything he earns?
He said that after he accounted for his fixed expenses of rent, food, transport etc. he never got to the end of the month without having to use his credit card. It was a cycle he was finding hard to break.
I’m not sure where the blockage was coming from, so I asked him to track and record what he spent his money on over the next couple of months. And hopefully at the end of this exercise, we’ll be able to identify where the is.
In our communications back and forth he did mention he was prone to buying things without giving them much thought, and what those things are, I’m not so sure, and I don’t think he knew either, but whatever they are, probably isn’t the problem.
The problem is that he’s doing it without thinking of the consequences.
And that can be okay by the way, because you want to build in some guilt free spending into your monthly spend, of course you do. You don’t want to be thinking should I or shouldn’t I every time you want to buy something.
As an aside, restricting yourself from some guilt free spending can actually do more harm than good.
Instinctively you might think cutting back will help you save money, but if you overdo it, it can lead to the exact opposite of what you intended it to do, where you start overspending because you become fatigued by over saving, which leads to impulsive purchases later on.
Anyway, mindless spending only becomes a problem when you aren’t saving any money at all, or the amount you are is quite small. It’s okay to spend whatever you want to, after you’ve set aside a % of your income, into a savings account.
The young man who reached out for help wasn’t saving anything at all, and he knew something needed to change.
And aside from tracking his spending, I thought there might be something else that could help him and others who might fall into that same trap of spending too much.
And what I’m going to tell you, might also help those who are not spending enough.
When I say not spending enough, sometimes people prevent themselves from spending money on things because they feel if they invested that same money, over time it would grow to a big number and that’s an opportunity lost they miss out on because they’ve spent it on something they didn’t really need but wanted.
Once you view any purchase like this and I know many people who do, where parting with any amount of money becomes a huge difficulty for them, then that’s another problem altogether.
Thankfully there is a solution that might satisfy those who don’t care and those who care too much when it comes to spending some of their money.
And it’s called the 2 X Rule.
The premise of the 2 X Rule is that whenever you are considering buying something or spending money on something which could fall under the heading of a splurge, you must take the same amount of money, and save it.
So, if you want to buy a watch costing €350, you also have to put €350 into your savings or pension account.
And everyone’s splurge amount could be different, so you set your limit. And maybe spending €100 on something or spending the same on a meal out or whatever doesn’t constitute a splurge for you, but perhaps €350 does.
So, for any of those purchases under your limit, you don’t have to think twice about them, spend away, it’s those higher value amounts that really could make a difference if (a) they were invested, or (b) do some damage i.e. puts you into an overdraft, forces you into debt, no money left to save etc.

As I said, this rule also works for people who need to loosen the purse strings.
Because it takes the guilt out of making a purchase and the opportunity lost off the table. They know money spend has to be followed by an equal lodgment into their savings or investment or pension.
And for those who have the tendency to spend more than they have or should but have come to realize how damaging it is to their finances, but still don’t trust themselves to, not stop making impulsive purchases, saving the equivalent amount they spend I think will help.
It will make them think twice now because if a purchase costs €200 and that’s their 2 X limit, then they also have to put €200 into a savings account.
The 2 X Rule helps people check back and re-evaluate whether they really want to buy something or not, because the consequences are pretty big. And it helps people make a less impulsive decision because if they are not willing to spend twice as much as it costs, then they don’t buy it.
You’ve got to be careful as well because you don’t want to set the bar too low where you think you can make as many €50 purchases as you want.
And it doesn’t mean you can get around the rule by asking the cashier to swipe your card 5 times with each swipe costing €50 for a €250 purchase either.
I joke but you have to be sensible as well and when you set the limits, you have to hold yourself accountable and you have to follow through, otherwise it doesn’t work.
If you’re looking for a good number to allow yourself that guilt free spending amount, which includes the 2 X Rule amount as well, I think a good % is somewhere between 5% and 10% of your net monthly income.
And that might be a lot lower for some people and will depend on what % of their income they are already saving each month and what their outgoings are and what level of debt they have and so on. But regardless of how good or bad your situation is, I personally think 10% should be the limit.
The 2 X Rule is a good one especially for those who want help from those internal voices, where one might be saying, buy it, you deserve it, worry about it later, and the other saying, are you mad, imagine all that interest you’d earn if you saved the money instead.
And you can vary the 2 X Rule as well if you want to.
If you think the number is too high, then maybe your multiple is half the cost of something.
So, if your splurge trigger number is €200, rather than saving €200, you could set it at €100 so your rule becomes 1.5 X.
I’ve been guilty of telling people, that small things add up to big amounts and the math in this regard is indisputable. But if it leads to people second guessing every single purchase they make, big or small, although mostly small, that’s not good either because they either begin to care too much and don’t spend anything at all or they care too little and spend everything they have. And of course money is important, but it shouldn’t make you break out in a cold sweat either every time you’re thinking of buying something for €5 either - €350 maybe, but not €5.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at or

To continue reading this article for FREE,
please kindly register and/or log in.

Registration is absolutely 100% FREE and will help us personalise your experience on our sites. You can also sign up to our carefully curated newsletter(s) to keep up to date with your latest local news!

Register / Login

Buy the e-paper of the Donegal Democrat, Donegal People's Press, Donegal Post and Inish Times here for instant access to Donegal's premier news titles.

Keep up with the latest news from Donegal with our daily newsletter featuring the most important stories of the day delivered to your inbox every evening at 5pm.