Investing can be one of the most powerful ways to build wealth, but how much of your budget should you allocate to it? The answer isn’t one-size-fits-all. Your ideal investment percentage depends on a variety of factors, including your financial situation, goals, and level of risk tolerance.

Some people can comfortably invest a significant portion of their income , while others may need to focus on clearing debt, saving for a home, or building an emergency fund first. The key is to ask yourself the right questions to determine a balance that works for you.

In this article, we’ll walk through key considerations to help you make an informed decision. By the end, you'll have a clearer idea of how much of your budget might be reasonable to dedicate to investing based on your circumstances.

Do I own my home, and if so, do I have a mortgage?

For homeowners with a mortgage, paying off the loan is often considered a form of investing. The reason is simple: extra mortgage payments reduce the total interest paid over time and can provide a risk-free return equivalent to your mortgage rate. For example, if your mortgage interest rate is 5%, every dollar put toward paying down your loan effectively "earns" you 5% by reducing future interest payments.

If you own your home outright, you may have more flexibility to invest. However, it's still worth considering whether maintaining liquidity or reducing your mortgage balance aligns better with your financial goals.

If I don't own, am I interested in buying a home one day, or am I happy to rent?

If homeownership is a future goal, you may want to prioritise saving for a deposit . While some choose to keep these savings in a high-yield account, others invest in shares or ETFs with the hope of growing their deposit over time. Others still may opt for a government-backed option, like the First Home Super Saver Scheme . However, it's important to consider the risk of short-term market fluctuations if you plan to buy soon.

If you're happy renting long-term, you may feel comfortable allocating more of your budget to investments, as you won’t need to access a large lump sum in the near future.

Learn more in our article: ‘ Should I build a home deposit by saving or investing?’

Do I have any "bad" debt?

Debt is often categorised as either "good" or "bad ," though in reality, the distinction isn't always that clear-cut.

"Bad" debt typically refers to high-interest obligations like credit cards and personal loans, where the cost of borrowing can quickly spiral out of control. "Good" debt, such as a mortgage or student loan, is generally seen as an investment in your future, generally offering lower interest rates and potential long-term benefits.

How this affects your budget allocation depends on your situation. If you’re carrying high-interest debt, it might make sense to prioritise repayment before focusing on investing. Lower-interest debt, such as student loans in Australia, may be more manageable, allowing you to balance repayments with regular investing, depending on your financial goals and risk tolerance.

Check out our guide to paying off debt or investing for a deeper look at deciding between the two.

Do I have an emergency fund?

Before committing significant funds to investments, you might want to consider an emergency fund . This fund seeks to cover 3-6 months of essential expenses and acts as a financial cushion in case of job loss, medical emergencies, or unexpected costs.

Investing in stocks or ETFs without an emergency fund may be more risky because market downturns are unpredictable. If you need to withdraw funds during a market dip, you could be forced to sell at a loss. Having a solid cash reserve might prevent this scenario.

Do I have dependents?

If you have children, a partner who relies on your income, or other dependents, your financial responsibilities are higher. This could mean that a larger portion of your budget needs to be allocated to daily living expenses, education, or insurance rather than investments.

On the other hand, if you have minimal financial obligations, you may have greater flexibility to invest a higher percentage of your income.

Do I want to retire early?

If early retirement is a goal, you may need to invest more aggressively. This could mean allocating a significant portion of your income to investments in shares, ETFs, property, or other wealth-building assets.

Traditional superannuation contributions might not be sufficient if you aim to retire before the standard preservation age. (This is currently between 55-60 in Australia, depending on when you were born.) This means additional investing outside of super could be necessary.

Do I have any big life events coming up?

Are you planning to start a family , launch a business, or take a career break? Major life events can impact your cash flow and investing strategy.

If you anticipate needing a lump sum in the near future, it might make sense to keep more of your budget in savings rather than tied up in long-term investments.

Am I comfortable with risk?

Not everyone has the same risk tolerance when it comes to investing. If the thought of market downturns keeps you up at night, you might prefer to invest a smaller percentage of your budget in less volatile assets.

Conversely, if you have a longer time horizon and can handle market fluctuations, you may feel comfortable allocating a larger percentage to growth-oriented investments.

You can discover how to figure out your risk tolerance here .

Side note: most full-time employees already invest via superannuation

Superannuation is a compulsory retirement savings system in Australia, meaning that most full-time employees are already investing a portion of their income. Your employer contributes at least 11.5% of your salary to super, and you may also have the option to contribute more voluntarily .

Depending on your priorities, you might consider additional super contributions or prefer to invest in assets that provide more immediate access to funds.

How different financial situations might impact your investment percentage

There’s no single "correct" percentage to invest, but different scenarios might influence how much you allocate:

• If you have high-interest debt : You might choose to focus on paying this off first before investing.
• If you have a mortgage and want to pay it off quickly : Some prefer to invest a smaller percentage (e.g. 5-10%) while prioritising extra mortgage payments.
• If you're saving for a home deposit : You could allocate 10-20% of your income to a high-yield savings account while investing a smaller amount.
• If you have an emergency fund, no high-interest debt, and financial flexibility : Investing 15-30% of your income might be reasonable.
• If you want to retire early : Depending on your timeline and income level, investing 40% or more could help you reach your goal faster. Even then, it depends on factors like expected returns and lifestyle preferences.

For those unsure about how much to invest, starting small and gradually increasing contributions over time is one approach. If you're uncertain, speaking with a financial adviser can provide tailored guidance.

Final thoughts

Investing is a deeply personal decision that depends on your financial obligations, goals, and comfort level with risk. By considering the factors outlined above, you can determine the right percentage of your budget to allocate toward investing. Whether you start with a modest contribution or take a more aggressive approach, the key is consistency and a strategy that aligns with your lifestyle and aspirations.

Happy investing!