How Much Money Should I Invest, Save, or Spend?

Everyone struggles at some point to find the perfect amount of money that they should be saving, spending, and investing.

You need to have enough money set aside each month to pay your bills, have spending money, and some leftover to save and invest. The truth is, that a lot of it depends on your current financial situation.

How to Divide Your Income: The 70/10/20 Rule

A good starting point for balancing your finances is using a simplified 3-bucket strategy:

• 70% of your income goes toward living expenses (rent, food, insurance, etc.)

• 10% goes toward your emergency fund or short-term savings

• 20% goes toward investing for your future—ideally into businesses you understand and believe will still be thriving in 10 years.

This allocation can shift based on your current goals and financial health, but it’s a simple framework to start making intentional decisions.

Before you settle on a fixed percentage to invest, reverse-engineer your retirement goals. Use tools like the Rule #1 Retirement Calculator to find out “your number”—how much you’ll need saved by the time you want to retire. If you know you’ll need $2 million in 20 years, for example, you’ll likely need to invest more than 20% of your income to get there, especially if you’re starting late. Work backwards from your end goal to determine how much to save and invest today.

Investing is not about throwing money into the market and hoping for the best—it's about becoming a business owner, not a stock trader. According to the Rule #1 strategy, once you have a financial foundation and high-interest debt is under control, your focus should be on investing in wonderful companies at attractive prices. This requires a mindset shift from consumer to owner—someone who thinks like Buffett and understands the business behind the ticker symbol.

Why Paying Off Debt Comes Before Investing

So, with that in mind, the one thing everyone should do immediately is to start paying down debt.

There are two kinds of debt: good debt (like a low-interest mortgage) and bad debt (like high-interest credit cards). Rule #1 investing urges you to eliminate bad debt first—why? Because if you're paying 20% interest on debt and only earning 0.1% in savings, you’re losing money. The best investment you can make initially is in your own financial foundation by eliminating high-interest debt.

I was lucky enough that I learned to live with very little for a good part of my life. When I started investing I had already been living in a sleeping bag for years. I didn’t have much, and I was able to keep my belt tight to save as much as possible to invest. 

Shifting from Consumer to Owner: The Rule #1 Mindset

That’s when I started to realize the benefits that investing could have for me.

That’s the mindset shift Rule #1 teaches: if you know you can earn 15–20% returns by investing in wonderful businesses with a margin of safety, suddenly saving becomes exciting. Just like Warren Buffett picking up a penny, joking it was “the beginning of the next billion.” When you think like a value investor, every dollar saved becomes the seed of future wealth.

How to Budget for Investing, Not Just Saving

Building a smart financial plan isn’t just about cutting expenses—it’s about learning how to allocate your income in a way that sets you up for long-term financial freedom. Let’s walk through some of the most common questions around how to budget for saving and investing, especially if you’re applying the Rule #1 investing strategy.

Does the amount of money you save, spend, and invest depend on how much you’re currently making?

Yes—but probably not in the way you think. While your income naturally influences how much you can save or invest, what matters more is how intentionally you allocate what you do earn. Whether you make $40,000 or $140,000, the goal is the same: prioritize paying off high-interest debt, live below your means, and invest consistently.

One of the most powerful principles in Rule #1 investing is: It's not about how much you make—it's about how much you keep and where you put it. Even small amounts invested wisely in wonderful companies with a margin of safety can compound significantly over time.

How can I go about budgeting how much I should save and invest?

Start by reverse-engineering your retirement goals. How much money will you need to live comfortably when you stop working? That’s what we call “your number.” Use the Rule #1 Retirement Calculator to figure it out.

Once you know your number, work backward. For example:

• Want to retire with $2 million in 20 years?

• You’ll need to consistently invest a specific amount each month at a strong rate of return (think 15% if you're following Rule #1 principles).

• That means you may need to invest more than 20% of your income if you're starting late or want to retire early.

Let your goal define your budget—not the other way around.

Should I invest all my savings instead of leaving them in a savings account?

It depends on your stage in life and your risk tolerance. If you're just getting started and don’t have an emergency fund, most financial advisors suggest setting aside 3–6 months of living expenses in cash.

But as a Rule #1 investor, there's an alternative approach: keep your investment funds liquid. Stocks—unlike real estate—can be sold within a day. If you invest in wonderful businesses, your capital is both productive and accessible. Just be mindful of short-term market dips, especially if you might need to pull money out during a downturn.

So if you're early in your journey and need to build wealth fast, putting most of your capital into Rule #1 investments with high liquidity can be a smart, calculated move.

How much should I save or invest to retire by a specific age?

This is where specificity matters most. Rather than guess, use a calculator designed to factor in inflation, investment returns, and your target retirement income.

The Rule #1 Retirement Calculator helps you do just that. Simply plug in:

• Your current age

• Your desired retirement age

• How much you want to live on

• Your expected rate of return

You’ll get a clear, realistic number for how much you need to invest—and when you need to start. Most people underestimate how much inflation will erode their future purchasing power. Don't let that be your blind spot.

📈 Example: If you want $50,000/year in today’s dollars, you might need over $2 million saved in 20 years due to inflation alone.

I want to leave you with a thought from one of the first value investors and Warren Buffett’s mentor, Ben Graham:

“All things excellent are as difficult as they are rare.” - Benjamin Graham Tweet this

I’d love to hear from you. What percentages of your money do you currently save, spend, and invest?

Do you have any “blind spots” when it comes to investing?

You may discover your investing weaknesses and learn how to manage your money smarter.

**Editor’s Note (Updated April 2025): This article was originally published in 2016 and has been significantly updated in 2025 to reflect current examples and Rule #1 investing insights.

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