[Locke1689]

Any money put into savings beyond petty cash for emergency situations is money lost if you have debts. The interest on your credit card debt is going to be at least an order of magnitude greater than any interest you're going to get on savings or investments. Pay off your debt first, save later.

The real answer is that you need to break down what is in that 45% because that's where "non-essentials" are going to be.

[jfruh]

Well, there's debt and there's debt. Right now my wife and I have three major debts: mortgage (4%), student loans (4.5%), HELOC (1.75%) -- and those rates are all effectively lower because the interest is tax deductable. When you're talking those kinds of interest rates, I don't think it's unreasonable at all to put money into retirement accounts (especially if those too are tax advantaged and/or if your employer matches).

But yes, if you have any kind of credit card debt, you're probably paying 10% or more on that, and you should be paying that down (and not adding anything new!) with money you'd otherwise earmark for savings.

[ww520]

Actually paying down the mortgage would be sensible. It is a guaranteed return risk-free investment. Mortgage rates are expensive when compared to comparative near risk-free investment; Treasure notes, CD, money market are in sub-1% range. Comparing mortgage paydown (risk-free) to stock (higher risk) are not a fair comparison.

[latch]

My CC interest rate is 38% :) Sometimes I feel like paying everything but $1 just to see the interest charged..but I'm too lazy to stop the auto-payment system.

[latch]

Your sentiment is right, as is your focus on credit cards, but just to be clear: not all debt have higher interests rates than what you can earn. Specifically, student loans (which has has), tend to have very load rates. Also, I once had a mortgage at a stupid low interest rate..also with respect to mortgages, a lot of them have rules about how/when payments can be accelerated (if at all).

[blibble]

in the UK offset mortgages are one solution to this problem: say you have a mortgage of £200k remaining, and £50k in a linked instant access savings account, then you only pay interest on £150k (no tax to pay on that effective interest either).