I won’t lie. Starting in 2020, I began to make 5-figures a month. And I’m now doing pretty well with my business. And I’ve been doing a written monthly budget for well over a decade. But is a budget necessary if you have a high income?
Here’s what I think:
A budget is helpful no matter what the salary range for the household. Even as the income increases, it is still very helpful to track spending and to ensure the money is going to the right places. And without a budget but with a high income, little mishaps can become very expensive mistakes.
But that’s just the tip of the iceberg.
How does budgeting change as your salary goes up? Do you change the percentages that go into the different categories? And do you really have to pinch every penny like before? And once you hit a certain level, is debt or credit cards OK because you’ve learned how to manage money better?
Let’s get into it!
What is a rich salary?
The IRS considers an annual salary of $470,000 per year or greater to be wealthy and among the top 1% of income earners in the United States. However, on a state-by-state basis, the range to be considered rich is often between $100,000 and $150,000 per year in income.
So there’s rich and then there’s the dreaded 1%’ers.
But let’s be honest $100,000 in San Francisco does not make you rich. But maybe in Kingman Kansas, it does. So location matters.
It’s also worth pointing out the tax rates at the time of this writing, the top bracket of which is $418,850 for married couples filing jointly.
But here’s the base tax rate no matter what your income:
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
- The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
(source)
But if you’re anywhere over an annual salary of $250,000, you’re doing pretty good and at least in the 3% club.
Do budget percentages stay the same as income goes up?
Generally speaking, the budget percentages will change as income goes up as certain expenses will not necessarily increase as the income does, such as mortgage, utilities, etc. Personal spending and eating out expenses likely will go up, as might vacations.
Just make sure to continue to invest a minimum of 15% of the take-home pay into mutual funds to ensure a proper nest egg. And if you’ve got younger kids and never saved for college, go ahead and start that aggressively too.
But unless you’re moving up to a nicer house, your mortgage and utilities won’t change. And your grocery budget doesn’t have to change substantially. Sure you can switch to organic produce or grass-fed beef. But it’s not like you’re suddenly buying for a larger number of people.
But for sure categories like eating out and clothes and general shopping will all go up. And that’s OK; you’ve earned it!
Sample budget for a family of 4 making $100k
Here is a sample budget for a family of 4 making a total annual household gross income of approximately $100,000:
| SPENDING CATEGORY | PERCENTAGE OF TOTAL | DOLLAR AMOUNT |
| MORTGAGE | 23% | $1,700.00 |
| GAS, ELEC, WATER, TRASH | 4% | $350.00 |
| PHONES | 3% | $250.00 |
| INTERNET | 1% | $75.00 |
| STREAMING CHANNELS | 1% | $50.00 |
| IRA/401K | 15% | $1,099.95 |
| KID’S COLLEGE FUND | 7% | $500.00 |
| VEHICLE FUEL/OIL | 3% | $250.00 |
| GROCERIES | 7% | $500.00 |
| EATING OUT | 3% | $250.00 |
| AUTO INSURANCE | 2% | $140.00 |
| LIFE INSURANCE | 2% | $160.00 |
| MISC HOUSEHOLD EXP | 2% | $170.00 |
| PERSONAL SPENDING | 8% | $600.00 |
| CHILDCARE | 8% | $600.00 |
| HOUSECLEANER (4X) | 9% | $640.00 |
| TOTAL | 100% | $7,334.95 |
It’s worth pointing out that this budget makes a few assumptions, such as:
- That the couple has no appreciable amount of debt
- That an emergency fund has already been saved that is 3-6 months of household expenses
- That the kids are still a few years away from being ready for college
- That the after-tax take-home pay will be roughly $7,333 per month (being in a 22% tax bracket)
- That the mortgage payment includes escrow for both annual property taxes and insurance
This is also roughly what I would do making that salary. I’m not providing you with financial advice. I’m simply showing you what I would do and have done in terms of my budget at that income level.
Don’t quite make $100,000 a year (yet)?
No worries. I have a whole article that breaks down how to budget for a family of 4 making only $60k per year. Then as your income grows, you can come back to this article to see how your budget can grow with your income.
Just click that link to read it on my site.
Sample budget for a family of 4 making $200k
Here is a sample budget for a family of 4 making a total annual household gross income of approximately $200,000:
| SPENDING CATEGORY | PERCENTAGE OF TOTAL | DOLLAR AMOUNT |
| MORTGAGE | 21% | $2,700.00 |
| GAS, ELEC, WATER, TRASH | 2% | $350.00 |
| PHONES | 2% | $250.00 |
| INTERNET | 1% | $75.00 |
| STREAMING CHANNELS | 1% | $50.00 |
| IRA/401K | 15% | $1,900.00 |
| KID’S COLLEGE FUND | 7% | $850.00 |
| VEHICLE FUEL/OIL | 2% | $250.00 |
| GROCERIES | 10% | $1,200.00 |
| EATING OUT | 6% | $800.00 |
| AUTO INSURANCE | 1% | $140.00 |
| LIFE INSURANCE | 1% | $160.00 |
| MISC HOUSEHOLD EXP | 4% | $500.00 |
| PERSONAL SPENDING | 12% | $1,500.00 |
| CHILDCARE | 5% | $600.00 |
| HOUSECLEANER (8X) | 10% | $1,280.00 |
| TOTAL | 100% | $12,605.00 |
It’s worth pointing out that this budget makes a few assumptions, such as:
- That the couple has no appreciable amount of debt
- That an emergency fund has already been saved that is 3-6 months of household expenses
- That the kids are still a few years away from being ready for college
- That the after-tax take-home pay will be roughly $12,667 per month (being in a 24% tax bracket)
- That the mortgage payment includes escrow for both annual property taxes and insurance
Again, this is also roughly what I would do making that salary. I’m not providing you with financial advice. I’m simply showing you what I would do and have done in terms of my budget at that income level.
Sample budget for a family of 4 making $300k
Here is a sample budget for a family of 4 making a total annual household gross income of approximately $300,000:
| SPENDING CATEGORY | PERCENTAGE OF TOTAL | DOLLAR AMOUNT |
| MORTGAGE | 22% | $3,700.00 |
| GAS, ELEC, WATER, TRASH | 2% | $450.00 |
| PHONES | 1% | $250.00 |
| INTERNET | 1% | $75.00 |
| STREAMING CHANNELS | 1% | $50.00 |
| IRA/401K | 15% | $2,550.00 |
| KID’S COLLEGE FUND | 8% | $1,350.00 |
| VEHICLE FUEL/OIL | 2% | $350.00 |
| GROCERIES | 9% | $1,500.00 |
| EATING OUT | 6% | $1,000.00 |
| AUTO INSURANCE | 1% | $200.00 |
| LIFE INSURANCE | 1% | $160.00 |
| MISC HOUSEHOLD EXP | 5% | $800.00 |
| PERSONAL SPENDING | 12% | $2,000.00 |
| CHILDCARE | 5% | $600.00 |
| HOUSECLEANER (12X) | 11% | $1,920.00 |
| TOTAL | 100% | $16,955.00 |
It’s worth pointing out that this budget makes a few assumptions, such as:
- That the couple has no appreciable amount of debt
- That an emergency fund has already been saved that is 3-6 months of household expenses
- That the kids are still a few years away from being ready for college
- That the after-tax take-home pay will be roughly $17,000 per month (being in a 32% tax bracket)
- That the mortgage payment includes escrow for both annual property taxes and insurance
- That compared to the lower budgets above, gas and auto insurance is higher due to the likelihood of either an additional car or a nicer car.
Again, this is also roughly what I would do making that salary. I’m not providing you with financial advice. I’m simply showing you what I would do and have done in terms of my budget at that income level.
What if…now hear us out…the federal government was required to balance its budget just like a regular household? pic.twitter.com/s4lBYZLkF4
— Convention of States (@COSProject) September 19, 2021
Should a budget be based on gross or net income?
A budget should always be based on take-home pay. After all, a budget based on the gross salary would essentially be spending money that really belongs to the government in the form of taxes.
So always go with your net income.
Self-employed? Well in that case, like me, you probably pay an estimated tax every quarter to the IRS. So in that case, budget in those payments, and then budget in the salary that you pay yourself.
And when in doubt, err on the low side. Better to be pleasantly surprised than rudely awakened.
How do you account for irregular expenses in your budget?
Account for irregular expenses in a budget such as quarterly payments, a known upcoming repair, or a large 1-time expense by dividing the total cost by the number of months available before the expense happens. Then budget that amount each month, transferring the money to a short-term savings account.
Then simply transfer the total amount back into your checking account when it’s time to pay the bill.
In accounting terms, that’s known as an accrual. But to give you a concrete example, my trash and recycling company charges me once per quarter, so 4 times a year. The amount they charge is $175.
So if I have to pay $175 every 3 months, that is the monthly equivalent of $58.33. I simply would take that from my overall household budget and transfer it to a short-term savings account. Then when it’s time to pay that bill, I simply transfer the total, now at $175, back into my checking account.
But that begs the question of how many bank accounts should you have?
Personally, I have 4. But why do I do that, what are those 4, and how do I use them? Luckily, I break all that down simply and easily in a recent article. You can’t really get ahead financially with just a regular checking and savings account.
Just click that link to read it on my site.
If you don’t pay your credit cards off monthly cut them up. They are draining your wealth-building opportunities!#financialplanning #taxes #wealthplan #investment #savings #buffett #money #pension #retirement #finance pic.twitter.com/WxV43VZAet
— Bryan Harvey (@BryanHarvey11) April 15, 2020
Are credit cards ok if you pay them off each month?
Credit cards are OK if you pay them off each month. This enables one to have both the convenience of the credit card, and to utilize the points that can be earned.
The problem with credit cards is not the debt.
The problem is that people get reckless, undisciplined, and lazy. They think as long as they have that plastic in their wallet, they have money. Then they tend to spend more than they earn. That leads to not paying them off in full each month.
Then before you know it, they have $10,000 or more in credit card debt on a $55,000 annual salary.
So while I know Dave Ramsey wouldn’t agree, if you have learned to be disciplined and tell your money what to do each month instead of playing clean up on what happened, why not enjoy the perks of a credit card?
I got 2 Chase cards after more than a decade of following Dave Ramsey and being debt-free. I pay them off each month. But I charge almost everything to them. I still track every charge on my budget.
But the points I earn get me a couple of thousand dollars a year!
Just track what’s being spent every week, pay it off in full every month without fail, and if things start to get out of control, put the card away in a safe place until you get things back under control.
Ultimately, we’re just talking about having a plan, being intentional, and being disciplined. Debt isn’t the problem. The lack of those qualities is.
It’s a mistake to create a budget so strict you don’t leave any room for fun activities or spending. This is unrealistic, and the chances of sticking to such a budget are slim. pic.twitter.com/dC4V3kJcFz
— Aron Darling (@AronDarling) September 21, 2021
Is it ok to not be strict with a budget if you make good money?
As a general rule, as the income exceeds $100,000 per year, it is acceptable to loosen the reigns on the budget and relax the rules a little. But continue to be intentional with spending, and be in communication with your spouse about large purchases.
After all, you’ve earned it.
So while I do think it’s a good idea to keep budgeting, if your wife overspends on a shopping day by $50 bucks and the household income is $300,000, it’s not worth starting an argument over.
And chances are you didn’t start off at that salary. So both of you probably remember the lean times where the budget was really tight.
So it’s OK to relax and enjoy the fruits of your hard work. Just don’t get too lax, and still have a general agreement with your spouse. And continue to talk about big purchases together before they happen.
That way you can avoid surprises.
Final thoughts
Budgeting works great at any level of income.
But it is true that it’s more crucial when the income is low and especially if you’re trying to pay off large amounts of debt. But it’s still a very useful thing to do.
And despite my income now being well into the mid-6-figures, I still do a monthly budget each and every month, just like I have since first discovering Dave Ramsey back in 2007 when I made next to nothing and was deeply in debt.
If you need help budgeting, make sure and grab a copy of my FREE BUDGET SPREADSHEET. It’s fully customizable and completely free. The budget is your 1st step in learning how to get ahead financially, so today is a great day to get started!
While I have years of successful financial & budgeting experience and run several million-dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinions based on my own experience, observations, research, and mistakes. While I believe all my personal finance posts to be thorough, accurate, and well-researched, if you need financial advice, you should seek out a qualified professional in your area.
Image by Gerd Altmann from Pixabay and Image by carlson Yeung from Pixabay
