What % of my income should I save and what % should go to debt?

[mama_ani]

I have a bank account that is my emergency fund, savings and 'catch-all' account (if we need glasses, shoes, clothes, etc it comes out of that account - anything that isn't a normal daily/weekly expense) What percent of my take-home income should go into that?

Right now 19% of my total income goes into that fund and 18% of my total income goes to debt repayment. If I continue at the rate now it will take 48 months to pay off my debt.

If I was to bump my debt repayment to 25% of my total income that would leave 12.5% of my total income going into the catch-all account. If I did this I could be rid of consumer debt in 36 months. Is it a good idea to set aside less money for savings etc if it means less debt sooner?

Right now the catch-all balance is the amount of about 50% of my normal month's expenses. I started the catch-all account in November and had to dip into it twice now (a small amount - only 7% of the total in the account)

What would you do?

[geekgolightly]

How much do you earn on the account you have and how much do you lose in interest in the debt you have?

[mama_ani]

Originally Posted by geekgolightly

How much do you earn on the account you have and how much do you lose in interest in the debt you have?

The debt is at 11.5% and the savings account is 3%.

I'd like to pay more to debt, that's just logical, but wonder how little is too little to save.

[geekgolightly]

Originally Posted by mama_ani

The debt is at 11.5% and the savings account is 3%.

I'd like to pay more to debt, that's just logical, but wonder how little is too little to save.

I would look at what your safety margin is (is in danger of running under X amount if you start putting in a reduced %?) by how much you actually pull out over a six month span and make your calculations from there.

[lyterae]

We put money in a savings account until we had an emergency fund of $1000 and now all extra money goes to wiping out the debt.

[colsxjack]

If it were me I would do the higher amount (25%) to debt repayment and the lower amount to savings. After a year, or whenever I felt I had a safety net to cover some unexpected expenses, I would put an even higher amount on debt.

By 2.5 years you could be debt free with an emergency fund and then able to put a much larger portion of your income into savings. At this point I would then set up two different savings accounts.
ING direct is great for this because they have zero fees and high interest. We love our ING Direct savings account, we made 3 times more interest through the year on our money once we moved it from the bank into ING.

I would have a short term savings account, for the glasses and shoes and field trips at school etc. And then I would have a longer term savings account for either emergencies or maybe a family vacation one day or something.

[thatgirliknew]

Originally Posted by mama_ani

I have a bank account that is my emergency fund, savings and 'catch-all' account (if we need glasses, shoes, clothes, etc it comes out of that account - anything that isn't a normal daily/weekly expense) What percent of my take-home income should go into that?

Right now 19% of my total income goes into that fund and 18% of my total income goes to debt repayment. If I continue at the rate now it will take 48 months to pay off my debt.

If I was to bump my debt repayment to 25% of my total income that would leave 12.5% of my total income going into the catch-all account. If I did this I could be rid of consumer debt in 36 months. Is it a good idea to set aside less money for savings etc if it means less debt sooner?

Right now the catch-all balance is the amount of about 50% of my normal month's expenses. I started the catch-all account in November and had to dip into it twice now (a small amount - only 7% of the total in the account)

What would you do?

I live Dave Ramsey's idea. $1000 in emergency fund ($500 if "low-income") and then devote all the money you can to paying off debts, THEN add ~ 6 months living expenses to savings.

[sunnysandiegan]

Are you comfortable with your savings account balance? It doesn't sound like you are to me, but only you know that.

I personally like to have savings while repaying debt, so that one unexpected medium-large expense doesn't pile on more debt. The popular tactic on this BB, however, is to have $1000 in savings and then throw every single dime at debt. To each their own.

I do like another PP and have two savings accounts for different purposes. I call them short-term savings (for 1-2 years worth of identified expenses) and mid-term savings (for 9-12 months worth of expenses as "emergency" funds, which is mostly for our extended retirement/college plan since we only have access to Roth IRAs, which have serious contribution limits). We also fully fund our Roth IRAs each year (via systematic investing each month), so I call those long-term savings.

Our breakdown may or may not help you, but here it is:
mortgage (PITI+extra towards principal) = 26% of gross income
long-term savings = 15%
mid-term savings = 11%
short-term savings = 2%

Even with debt, I highly recommend *everyone* start saving for retirement sooner rather than later -- even if it is just $25 per month via systematic investing (many minimums are waived when you set it up this way).

Our short-term savings is low (technically 1.7%, but I rounded all the percentages) because we budget for all expenses and don't use this account often--generally once a year for home improvement projects or vacation (alternating years).

ETA: When we had other debt, we still contributed to our Roth's (not fully funding them, though) and we kept a $1000 buffer in our checking account for emergencies and we slowly built up our short terms savings while paying off debt. We did not contribute to our mid-term savings at that time, but I already had that account (modest balance) before meeting DH. I firmly believe in having savings no matter what and it has served me (us) well. The dollar amount is always relative, of course. YMMV.

[mama_ani]

Thank you for your replies everyone! I've adjusted my budget and without touching my savings (and adding a little bit each month) I will pay off my debt in 24 months!