Answer extracted from the Your Next Dollar: Money Management for High Earners podcast — listen to the full episode below.
How much of your budget should go to essential expenses?
Essential baseline expenses like housing, food, transportation, and medical costs should be kept at 50 to 60% or less of total spending. If these expenses creep above 60%, you face either an income problem or a spending problem, leaving little room for lifestyle choices and long-term savings.
The expense ratio that reveals financial health
When baseline expenses consume more than 60% of your total budget, it's a signal that your financial structure needs adjustment. This threshold exists for a reason: it protects your ability to allocate funds toward discretionary spending, emergency reserves, and wealth-building investments.
Most people assume their money problems stem from poor discipline, but as discussed in the episode, the real issue is often a lack of visibility. You can't fix what you don't measure. Understanding where your baseline expenses sit relative to your total income is the foundation of any sound financial strategy.
What counts as baseline expenses
Baseline expenses are non-negotiable costs: housing, utilities, food, transportation, and essential medical care. For high earners, housing alone should represent less than 30% of gross income. This keeps the largest expense category from consuming the majority of your budget.
The 50–60% threshold for total baseline expenses creates clear mental boundaries. Once you know this percentage is under control, the framework explained in Your Next Dollar makes it easier to allocate the remaining funds strategically: tax planning, wealth building, and discretionary lifestyle spending.
Ryan — Financial Advisor specializing in high-income wealth strategies. Ryan works with clients to establish net worth benchmarks, optimize RSU taxation and withholding strategies, and build tax-efficient investment plans that prevent unexpected tax liabilities.
If you want to dive deeper into how tracking six key financial metrics can accelerate wealth building, listen to the full episode on Listenly where Andrew Giancola and Ryan walk through each number and discuss what this framework looks like in practice for high earners.
Key takeaways
- Essential baseline expenses should never exceed 50–60% of total spending to maintain financial flexibility.
- If baseline expenses exceed this threshold, you have either an income problem or a spending problem requiring adjustment.
- Housing costs alone should stay below 30% of gross income to keep the largest expense within healthy bounds.
- Keeping baseline expenses contained frees up budget space for savings, investments, and lifestyle choices.
See also
Why is tax planning important for high earners and how can unexpected tax bills be avoided?
High earners often transition from receiving tax refunds to owing money, which should not be an unexpected expense. Tax liability can be projected and planned for throughout the year.
How should RSUs be treated in income calculations for high earners?
RSUs are real income and should be treated like a cash bonus. They are W-2 income and you are taxed on them when they vest. For high earners, RSU vesting can represent substantial additional annual income.
What is the biggest lever for building wealth according to financial advisors?
Income is probably the biggest lever in terms of building wealth. High-income earners should think of themselves as business owners selling their time, energy, and expertise to the highest bidder.