What percent of income should you invest each month?
See what investing 10%, 15%, or 20% of take-home pay looks like in dollars and over 20 years, and how to step up your rate over time.
A good starting point is to invest 15% to 20% of take-home pay, then adjust to your situation. Ten percent is a solid floor for people who are just starting, and 25% or more can shorten the road to financial independence considerably.
This guide shows what each percentage means in dollars and in long-run outcomes, and how to step up over time. Projections are hypothetical and not guaranteed. Educational only.
What each percentage looks like
The 50/30/20 budget rule suggests about 20% of after-tax income for savings and investing. It is a guide, not a law: someone with high housing costs may start at 10%, while someone with low expenses can push past 30%.
With take-home pay of $6,000 per month, each percentage translates to a very different monthly contribution.
- 10% of $6,000: $600 per month
- 15% of $6,000: $900 per month
- 20% of $6,000: $1,200 per month
Monthly contribution = Take-home pay × Contribution %
What the difference can mean over 20 years
Assume a hypothetical 7% annual nominal return, compounded monthly, and no change in contributions. After 20 years, $600 per month grows to roughly $313,000, $900 per month to about $469,000, and $1,200 per month to about $625,000.
Total contributions at $900 per month are $216,000, so the remainder is growth. These figures are illustrations, not forecasts. Real returns vary year to year and can be negative for long stretches.
Future value = Monthly contribution × (((1 + r/12)^(12 × years) − 1) ÷ (r/12))
Factors that should move your percentage
Start from 15% to 20% and adjust. Several factors justify going higher or lower.
- Higher: you are starting late, want to retire early, or have a stable income and low debt.
- Lower: you carry high-interest debt, have no emergency fund, or have an unstable income.
- Employer match: always contribute enough to a 401(k) to capture the full match first, because it is an immediate return.
- Tax-advantaged room: fill the 401(k) and IRA before a taxable account when it makes sense.
How to ramp up without feeling it
The least painful way to raise your percentage is to tie it to raises. Each time your pay increases, send half of the increase to investments. Your take-home pay still grows, but your savings rate climbs.
- Start at a percentage you can keep through a bad month, even if it is 5%.
- Automate the transfer for the day after payday.
- Raise the percentage by 1 point every six months or with each raise.
- Stop increasing when you reach your target, or when it begins to crowd out your emergency fund.
Keep learning
Turn a percentage into a plan
Create a free account to set a contribution target and track it against your real surplus.