How Much of My Income Should I Save and Invest? (Hint: It’s Not a Percentage)
Nick Donato is a financial adviser at Guidance Financial Services who specialises in helping clients all over Australia aged 30 to 50 get their financial foundations sorted, so they can build wealth and have more choice in life through our Wealth Builder program. You can learn more about it here.
You’ve decided this is the year you’ll finally get your money organised. You search how much of your income you should save and, within seconds, you have an answer.
Twenty per cent.
Then you try applying it to your own life. Twenty per cent of your take-home pay, after the mortgage, childcare and the car that suddenly needs two new tyres. The amount is either laughable or so tight that you know one expensive month will bring the whole thing undone.
When clients tell us they could save somewhere between two figures, we usually build the plan around the lower one. It may look less ambitious, but it is far more likely to still be happening two years from now.
There is no savings percentage that works for everyone. The figure that matters is the amount you can regularly save or invest without stopping as soon as an unexpected expense arrives. If the honest answer is a range, the lower end is usually the better place to begin. You can always increase it later.
Paul covered the broader version of this in a recent Financial Autonomy podcast episode about turning a good income into long-term wealth. I wanted to spend more time on this first step because it is where many financial plans either take hold or fall apart. It is also one of the first things I work through with a new client.
Listen to the episode:
What percentage of my income should I invest?
There is no universal percentage because the popular rules make assumptions that may have very little to do with your life.
They assume a certain mortgage or rent, household structure, tax position and set of goals. Change any of those and the same percentage can produce a very different result.
Take two households earning a combined $180,000. One rents and has no children. The other has a mortgage and two children in childcare. Asking both households to invest the same percentage of their income makes little sense, yet both will commonly be told to aim for twenty per cent.
Percentage rules can also overlook some of the wealth building already happening. Employer super contributions increase your retirement savings, while additional mortgage repayments build equity in your home. Neither may appear in the amount transferred to a savings account each month, but both affect your financial position.
A more useful question is how much your own cash flow can comfortably support.
We have a handy budget planner tool to help you work it out. Access it below:
What is the 50/30/20 rule, and does it work in Australia?
The 50/30/20 rule divides after-tax income into three categories:
50% for needs
30% for wants
20% for savings
It can be a useful starting point for someone who has no system at all. It treats saving as something to plan for instead of whatever happens to be left at the end of the month.
The difficulty for many Australian households is the 50% allocated to needs. In the major capitals, a mortgage or market rent can easily consume more than half of a household’s after-tax income before groceries, utilities, insurance and transport enter the picture. That is why you will now see variations such as 60/20/20.
There is another problem for higher earners. Because wants remain fixed at 30%, the rule allows lifestyle spending to rise automatically with every pay increase. Earn an extra $1,000 and $300 is immediately available for more spending.
That may be fine if it reflects your priorities. But if you are earning considerably more than you were five years ago and still feel no further ahead, the percentages may be preserving the problem you are trying to solve.
How much does the average Australian actually save?
Australian households saved 6.5% of their gross disposable income in the June 2026 quarter, up from 6.4% in the March quarter, according to the ABS Australian National Accounts released on 2 September 2026.
That does not mean the average individual transfers 6.5% of each pay into a savings account. It is a national measure covering all households, so it cannot tell you what your personal savings target should be.
It does show how far real household behaviour sits from the twenty per cent commonly recommended in budgeting rules.
If you are saving considerably more than 6.5%, you may be making better progress than it feels like when you check the balance late at night.
It also raises a fair question about the usefulness of advice that most households cannot consistently follow. A target that is too high usually survives until the first expensive month. Then the contribution stops, and restarting gets pushed back until things settle down.
Things rarely settle down by themselves.
How much should I be saving each month?
The best starting point is an amount you can see yourself maintaining in eighteen months.
When someone gives me a range, the higher figure often describes a good month. There is no car service, dental work, school fees or holiday booked in a moment of optimism.
Build the plan around that figure and a completely ordinary month can knock it over.
Once a plan breaks, people do not always reduce the contribution to something more manageable. They often stop it altogether and promise themselves they will restart later. Unfortunately, later has no date attached to it.
The lower figure has one important advantage: it is more likely to survive a normal year.
Once the contribution has continued through both the easy and expensive months, increasing it becomes a straightforward adjustment. You are building on a system that already works instead of continually starting again.
If you want a more reliable number, go through three months of actual bank statements. They will tell you more than an estimate made from memory, and most people are surprised by what they find.
How much should I have in an emergency fund first?
You need enough accessible cash to stop an unexpected bill from becoming an investment decision.
Without that buffer, the first major expense may force you to sell an investment at whatever price the market happens to be offering or stop your regular investment plan. Holding some additional cash can help you avoid both.
The right amount depends on the stability of your income, whether your household relies on one or two incomes, your fixed commitments and how quickly you could replace lost income.
A household relying on one income while carrying a mortgage and supporting children will generally need more protection than a household with two secure incomes and no dependants.
If you have a home loan, an offset account is often a natural place to hold an emergency fund. The money remains accessible while reducing the interest charged on the loan.
We explore that decision further in Offset Account vs Investing in Shares.
What should I do with the money once I know the number?
Once you know what you can regularly set aside, you need to decide where it should go.
The options might include:
Making additional mortgage repayments
Contributing more to super
Investing outside super
Using a combination of all three
Each option has different tax consequences, access rules and suitable timeframes. Rather than squeezing that much larger decision into this article, we have covered the main parts separately:
Mortgage, Super or Investing: Where Should Your Extra Money Go in Your 30s and 40s? Explores how to choose where your money goes between your mortgage, super and investments.
Which Debt Should You Pay Off First? Explores debt repayment strategies
Index Investing Explores regular investing strategies
It helps to decide where the money will go before it arrives. Without a nominated job, surplus cash has a habit of staying exactly where it landed.
When is it worth getting financial advice?
Getting a realistic monthly figure is something most people can do with their bank statements and an honest look at their spending. I would rather you do that yourself than pay someone to tell you what your transactions already show.
The harder part is deciding how to divide the money between your mortgage, super and investments outside super. The right split will depend on your tax position, investment timeframe, need for access and the future you are trying to create.
This is often where general information reaches its limit. You can have several options that each make sense on their own and still have no idea whether they work together.
Our Wealth Builder program begins with your genuine monthly capacity. From there, we work through your goals and timeframes, then bring your cash flow, mortgage, super and investments together in one plan.
Frequently asked questions
-
There is no percentage that suits everyone. The useful figure is the amount you can continue saving or investing each month when unexpected costs arise. If the honest answer is a range, the lower end is usually the safer place to begin. You can increase it once the plan has been running for a while.
-
It can be a useful starting point for someone with no system, but allocating only 50% to needs may be unrealistic once mortgage repayments or market rent are included. Because spending also rises with income under the rule, it may work against higher earners who want to turn more of their income into wealth.
-
The Australian household saving-to-income ratio was 6.5% in the June 2026 quarter, according to the ABS Australian National Accounts released on 2 September 2026. This is a national household measure rather than an individual savings rate, so it should not be treated as a personal target.
-
Item description
-
They increase your wealth, so in substance yes, although they are not accessible until you meet a condition of release. Employer contributions mean a portion of your saving already happens automatically, which is worth accounting for before deciding what else you can commit.
This article is for educational purposes only and does not take into account your individual circumstances. If you would like tailored advice, we can help you work through the numbers properly.
