Recipe for a smarter purchase
Reading time: 2 minutes
Ingredients: your salary, an expense, and a conservative return assumption
Difficulty: 🟡⚪⚪⚪⚪
Complexity drill-down:
- 🟡 Enter your annual salary (your UK tax proxy is estimated automatically)
- ⚪ Type in any expense and pick a frequency
- ⚪ Choose the return your savings or portfolio can sustainably earn
- ⚪ Read off the capitalised wealth hit, as a share of salary and in pre-tax earnings
- ⚪ Reward: a number that makes the next impulse buy easier to resist
Perfect song for the recipe
I recently read Stuart Kirk’s Financial Times column on capitalising recurring spending, and the framing stuck with me. Any recurring expense can be reframed as the amount of wealth you would need invested to support that spending.
Take a £90 monthly subscription box. At a 5% return and a 20% tax rate on that return, the annual £1,080 habit needs about £27,000 of capital to fund it indefinitely. A £36 weekly takeaway routine is closer to £46,800. A £1,200-a-year gym membership is about £30,000.
That reframing is the whole point. The maths is not exotic, it is just a perpetuity calculation with tax in the way, but most of us never apply it to our own spending. So I put my solutions developer hat on and turned the idea into a small tool.
The Calculator
So, here it is, below this paragraph. Try one of the example chips – subscription box, weekly takeaways, gym membership, coffee habit – to see the logic in action. You can also add several expenses to the comparison table and export them as a CSV for Excel, Google Sheets, Numbers, or any other spreadsheet app.
If the embed does not load well on your device, open the full-page version here: https://viscioletti.com/capitalised_expense_calculator
How The Maths Works
For any recurring expense, the calculator works out the annual cost \(C\), then estimates the capital \(K\) needed to fund it indefinitely.
If your capital earns a return \(r\), and that return is taxed at rate \(t\), then each pound of capital generates \(r(1-t)\) of spendable income per year.
So the capital required to support an annual expense \(C\) is:
\[ K = \frac{C}{r(1-t)} \]
That is the key formula. The lower your return, or the more tax you pay on that return, the more capital you need to support the same spending.
Why? Because the denominator is the spendable income your capital produces each year. If £1 of capital earns \(5\%\) and there is no tax, it produces 5p of annual spending power. If that return is taxed at \(20\%\), the same pound only produces 4p after tax: \(5\% \times (1 - 20\%) = 4\%\). So a £1,000 annual expense would need £20,000 of capital with no tax, but £25,000 once the return is taxed at \(20\%\).
In practical terms, the calculator shows:
- Annual cost — the expense scaled to a yearly figure.
- Net income rate from capital — your assumed return after applying the tax rate proxy.
- Capitalised wealth hit — \(K = \frac{C}{r(1-t)}\), the pot of capital needed to fund that expense forever.
- Share of salary — the same number expressed relative to your annual income.
- Pre-tax earnings equivalent — how much gross earnings the expense corresponds to once tax is taken into account.
- Comparison export — a CSV of saved scenarios, so you can play with different cuts, totals, and long-term saving ideas in a spreadsheet.
An important caveat: capitalised values are smaller when you assume a higher return. That is not a mistake. This is a present value calculation — the capital needed today to generate a future stream of spending — not the future value you might accumulate if you invested the money instead.
A Note On Tax
The tax treatment here is deliberately simple. The calculator uses your salary to estimate a UK tax proxy, then uses that rate as a rough proxy for the tax drag on the income needed to support the expense.
That is useful for intuition, but it is still a simplification. Actual tax treatment depends on where the money sits and how returns are taxed:
- inside an ISA, the effective tax rate may be \(0\%\)
- in a pension, the picture is different again
- outside wrappers, tax may depend on interest, dividends, or capital gains
- the personal allowance taper, National Insurance, and Scottish tax bands can also change the result
So treat the output as a behavioural finance tool, not a fully personalised tax model. The point is to make spending legible, not to pretend precision.
Bookmark It
The calculator is a single self-contained HTML file. There is no backend, no account, and no tracking; your numbers never leave your browser. Even the CSV export is generated locally in the page. For a clean full-page version, use it on the site:
- Use it on the site: https://viscioletti.com/capitalised_expense_calculator — bookmark that URL for a clean, full-page version.
Next time you are weighing a subscription, a membership, or a small recurring luxury, open the bookmark, plug in the number, and see the claim it is really making on your future.
Star the Repo
This webapp is part of a collection of web apps for disparate use cases. If you found it useful, consider starring the repo – it helps me spread the word.