How Much of My Salary Should I Invest?

Deciding how much of your salary to invest is one of the most practical and impactful financial questions you can ask. While there is no single right answer for everyone, the wisdom of great investors provides a clear framework for thinking about this decision.

Warren Buffett has consistently emphasized that the gap between earning and spending is the foundation of all wealth building. He famously lived in the same modest house he bought in 1958 for $31,500, despite being one of the richest people in the world. His message is clear: it is not about how much you earn but how much you keep and invest. Buffett's personal savings rate in his early career was estimated to be well above 50% of his income, which provided the capital that eventually compounded into billions.

The conventional financial planning advice of saving 10-15% of gross income is a reasonable starting point, but master investors would argue it is insufficient for building real wealth. Charlie Munger has noted that the first $100,000 is the hardest milestone to reach, and after that, compounding starts to do the heavy lifting. The faster you reach that first $100,000, the sooner exponential growth takes over. This means front-loading your savings rate -- investing aggressively in your 20s and 30s -- has a disproportionately large impact on your lifetime wealth.

The practical approach begins with building an emergency fund of 3-6 months of essential expenses in a high-yield savings account. This is not an investment -- it is insurance against life's inevitable surprises. Without this safety net, a job loss or medical emergency could force you to sell investments at the worst possible time.

Once your emergency fund is in place, the hierarchy of investing should follow a clear order. First, capture any employer match in retirement accounts -- this is free money with an immediate 50-100% return. Second, maximize tax-advantaged retirement accounts. Third, invest additional savings in taxable brokerage accounts. Fourth, consider additional real estate or alternative investments once your foundation is solid.

Howard Marks provides perhaps the most psychologically honest advice: invest an amount that lets you sleep at night while still making meaningful progress toward your goals. If investing 30% of your salary causes you constant stress and forces you into an unsustainable lifestyle, you will eventually abandon the plan entirely. A sustainable 20% invested consistently for decades will outperform an aggressive 40% maintained for only two years before burnout.

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The Bottom Line

The answer to how much you should invest is ultimately personal, but the principle is universal: invest as much as you sustainably can, as early as you can, and increase the amount over time.