How Much Should You Actually Be Spending, Saving, and Investing

Hugh at The Henry Desk
Jul 10
5 min read

The popular rules of thumb were built for a different income, a different tax system, and often a different country. Here's what the numbers really look like for a high-earning Australian.

If you've ever searched "how much should I save," you've met most of the rules of thumb. They're clean, memorable, and repeated everywhere. They're also, for most high earners in Australia, quietly wrong. Not because the math is bad, but because the assumptions underneath them don't match your situation.

Let's start with the rules as they're usually taught, then replace them with actual values.

The rules of thumb

The 50/30/20 rule. Split your after-tax income three ways: 50% to needs (rent or mortgage, groceries, utilities, transport, insurance, minimum debt repayments), 30% to wants (dining out, subscriptions, holidays), and 20% to savings and extra debt repayment. It's the most cited budgeting framework in the world and it's genuinely useful as a first sketch but does have it limits

The emergency fund. Hold three to six months of essential expenses in accessible cash. Australia's government guidance (Moneysmart) lands on three months of expenses as a solid baseline, with more if your income is variable or you'd want a longer runway.

Pay yourself first. Automate the savings transfer the day you're paid, so the money never sits in your spending account inviting you to spend it. This one survives contact with reality better than most, and means that your hard earned cash is already put to work, not burning a hole in your pocket.

"Save 20%." The single most common headline number. Save a fifth of what you earn and you'll be fine.

Here's the problem with that last one, and with applying any of these mechanically as a high earner.

Why the rules break for high earners

Three things distort the picture once your income climbs:

The rules are framed on take-home pay, but your tax rate is steep.

Australia's tax system is progressive, so the rules' "% of income" framing hides how hard your top dollars are taxed. On the 2025–26 brackets, income above $135,000 is taxed at 37% and income above $190,000 at 45%. Add the 2% Medicare levy and your marginal rate on the next dollar earned is 39% or 47%. The relevant question isn't "what percent of my pay should I save," it's "what do I do with each dollar given how heavily it's already being taxed."

2. You're already saving more than you think through super. Since 1 July 2025, employers must contribute 12% of ordinary earnings to superannuation. Someone on a $180,000 base is already having roughly $21,600 a year directed into long-term, tax-advantaged savings before they see a cent of take-home. The 50/30/20 rule, taken literally, ignores this entirely; it would have you save another 20% on top. That's not wrong, exactly, but it means the headline number badly understates what a disciplined high earner is already or can actually put away.

3. Spending scales, and "needs" stops meaning needs. At a high income, a 50% "needs" allocation becomes permission to let lifestyle inflation absorb an enormous sum. The rule was designed to protect people on tight budgets from under-saving. For high earners the failure mode is the opposite: spending expands to fill the allocation, and a six-figure income converts into surprisingly little wealth.

That last point is the one that matters most. The gap between income and accumulated wealth is the entire reason "high earner, not rich yet" is such a recognisable situation.

The actual values

Forget percentages of take-home pay for a moment. Here's a more accurate way to think about the real numbers, using a $180,000 earner (super inclusive) as a worked example (figures rounded and illustrative, this is not personal financial advice).

What's already happening: roughly $52,000 leaves in income tax and Medicare levy, leaving about $128,000 in take-home pay. Separately, about $21,600 goes into super at the 12% rate. So before any active decision, around 12% of the total package is already being saved.

The super opportunity most people leave on the table. Concessional (before-tax) super contributions are capped at $30,000 for 2025–26. With $21,600 of that filled by employer contributions, there's roughly $8,400 of room left to salary-sacrifice or claim as a personal deduction. Those contributions are taxed at 15% inside super instead of the marginal 39% or 47% rate, a difference of 24 to 32 cents in the dollar. For a high earner, filling the concessional cap is can be one of the highest-return "savings" decision available, before any investment is even chosen.

(One flag for the very top end: once a person's income plus contributions exceeds $250,000, Division 293 adds 15%, taxing those contributions at 30%. Still below the 47% they'd otherwise pay the strategy holds, the margin just shrinks. For more, check out our post on "What is Division 293?")

The cash buffer in dollars, not months. Three months of essential expenses for a household spending, say, $7,000 a month on needs is around $21,000. Six months is $42,000. Park it somewhere accessible earning interest, not in your offset-by-default everyday account where it blurs into spending.

The savings rate that actually matters. Rather than aiming for 20% of take-home, a more honest target for a high earner is a gross savings rate: total dollars going to super, debt reduction, and investments, divided by your total income. Many high earners who feel like they're "saving 20%" are converting far less of their income into lasting wealth once lifestyle spending is counted properly. The useful metric isn't how much you save this month; it's what proportion of everything you earn is being converted into assets you keep. Measuring that number (call it your wealth conversion rate) is where most of the leverage is.

Not sure what your Wealth Conversion Rate is? Talk to us today about our Rapid Budget Assessment offering, and we can provide an overview to guide your financial understanding.

For context, the national picture. Australian households collectively saved about 6.9% of disposable income in the December 2025 quarter (ABS), and the saving ratio has hovered between roughly 5% and 7% for over a year. That's the average across all incomes. A high earner who is deliberate can comfortably run two to three times that, but only by treating the surplus as a decision, not a residual.

A better way to look at saving in a high income situation

If you want a framework that holds up at a high income, this ordering tends to work better than any fixed percentage:

Cover needs and a sane amount of wants — without letting either expand just because there's room. You've worked hard to earn a high income, so life should still have some of its trimmings.
Build the cash buffer to three to six months of essential expenses, then stop.
Fill the concessional super cap to make use of one of the best incentivised ways to save.
Direct the genuine surplus to investing or debt reduction, depending on your rates and goals.
Automate all of it so the decision is made once, not monthly.

Notice what this does: it replaces "save 20%" with a sequence that adapts to marginal tax rates, existing super contributions, and the actual size of income surplus. These are the three things the rules of thumb ignore.

This is general information, not personal financial advice. Figures reflect 2025–26 settings and change with legislation and your circumstances. For decisions specific to your situation, speak to a licensed financial adviser or registered tax agent.