Income Allocation Framework

A breakdown of how to allocate take-home (post-tax) income, with specific adjustments for high earners making $500k+.

Standard Financial Infrastructure (Base Model)

• Fixed Costs: 50-60% of take-home pay

  • Rent/mortgage
  • Groceries
  • Debt
  • Auto expenses

• Investing: 5-10% of take-home pay

  • Where real wealth is created
  • Higher percentage preferred

• Saving: 5-10% of take-home pay

  • Emergency fund
  • Down payment
  • Kids' activities
  • Vacation funds

• Guilt-Free Spending: 20-35% of take-home pay

  • Eating out
  • Travel
  • Entertainment
  • Discretionary purchases

Modifications for $500k+ Earners

• Fixed Costs: Tends to decrease

  • Often drops to 50% or lower
  • Due to higher income relative to basic expenses

• Investing: Increases significantly

  • Typically 15-20% of take-home pay
  • Can reach 20-25% for aggressive savers
  • FIRE community members might go even higher

• Savings: Remains similar

  • 5-10% range
  • Sometimes slightly higher

• Guilt-Free Spending: Can increase

  • Can maintain 35% (which is significantly more in absolute dollars)
  • Common mistake: Some high earners under-utilize this category
  • Important to learn the skill of meaningful spending

Common High-Earner Mistakes

• Over-investing while under-spending on enjoyment
• Waiting until year-end to spend guilt-free money
• Sweeping unused guilt-free funds into investments
• Not adapting psychology to match increased wealth
• Maintaining scarcity mindset despite abundance