The 40% Rule – Why You Need to Start Putting Money Aside (and How to Do It)

If I could have a dollar for every time a client said, “I didn’t realise I’d owe that much tax,” I’d probably be looooonnnnnngggggg retired by now.

Running a business means juggling a thousand balls — and when cash is coming in, it’s easy to forget that not all of it is yours to spend. This is where I love to introduce the 40% rule. It’s simple, practical, and has helped so many of our clients avoid cash flow panic, tax shock, and sleepless nights.

Let me break it down.

💡 What is the 40% Rule?

It’s the idea that for every dollar your business receives, at least 40 cents should be put away to cover things like:

• GST

• PAYG withholding on wages

• Superannuation (including your own!)

• Income tax

• Any other recurring fixed expenses

You’re not “losing” that money — you’re planning for it.

Planning for what you KNOW is coming

Depending on your business size and structure, your number might be closer to 30% or 50% — but as a general starting point, 40% is a solid buffer.

Let’s say your business brings in $5,000 per week.

Following the 40% rule:

• You’d set aside $2,000 per week into a separate bank account.

• That $2,000 will later fund your quarterly BAS, super payments, and your income tax bill come year-end.

If you’ve ever scrambled to pull together a BAS payment the week it’s due, you know how powerful this can be.

👩‍💼 “But what if I don’t know how much I’ll owe?”

That’s normal — especially if you’re new in business or things fluctuate. The best place to start is with what you do know:

• What are your fixed costs? (e.g. rent, subscriptions, insurances)

• What’s your wage bill each month?

• Are you paying yourself a wage or a drawdown? Either way, you need to factor yourself in — you’re not a robot.

We help our BAS clients each quarter with a tax projection based on how their business is tracking — and from there, we calculate a suggested weekly “put away” amount so you’re never caught short.

🔧 Tools to Make It Easy

You don’t need to be an Excel genius or buy expensive software. Here are a few easy options:

• Use a second business bank account labelled “Put Away”, "Savings", "Tax" "anything you like!", and set up an automatic weekly transfer (you won’t even miss it).

• Use a basic Google Sheet or Excel template with estimated GST, PAYG, super and tax obligations. Review it monthly.

• Or chat to us — we can create a budgeting spreadsheet tailored to your business.

If AI is your thing, even ChatGPT can help you draft weekly cash flow plans if you provide some basic numbers.

Every little bit counts

🧍‍♀️ And Yes — It Works for Personal Budgets Too

The 40% rule can be adapted for households. For example, set aside:

• 30% for rent/mortgage, bills, groceries

• 10% for savings, emergencies or Christmas

The trick is the same principle: don’t spend everything that lands in your account.

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🔎 “But What If There’s Not Enough Coming In?”

Here’s where it gets real — because sometimes, you’re doing everything right, and it still feels like there’s just not enough.

For Business:

Start by reviewing:

• Wages – Are they sustainable? Can you reduce casual hours or reallocate roles?

• Pricing – Are you charging enough? Many businesses undercharge out of fear.

• Subscriptions & extras – Are there tools or memberships you’re no longer using?

• Stock on hand – Are you over-ordering?

You can also look at changing your billing terms, taking deposits upfront, or renegotiating supplier payments.

For Personal Budgets:

Separate your essentials vs luxuries:

• Essentials: rent, food, petrol, school needs

• Luxuries: takeout, streaming services, gifts, excess clothing

It’s not about living on crackers — it’s about being intentional. For example, cancelling 3 streaming subscriptions might save you $60/month. That’s $720 a year you can redirect to Christmas savings or debt reduction.

If you’re a planner like me, you know how good it feels to be ahead. But if you’re not, that’s okay too. Start small. One account. One habit. One regular check-in with your numbers.

I promise — the more you put aside regularly, the less overwhelmed you’ll feel. It’s like putting out the fire before the sirens start blaring.

And if you don’t know where to start? That’s what we’re here for.

Reach out, ask the question, share the worry. That’s our job — and we love it.

Mel