How much saving is too much?

In my post "Why build an emergency fund?" Jim of mydebtblog.com commented:

I think saving 30% of your income is beyond excessive if you still have debt. Being debt free seems more important in the sense that you wouldn't borrow money to invest or save and then keep making payments.

Quite right, saving 30% of your income when you still have debt can be pretty excessive. But everyone's situation is different. There's no real set dollar amount or percentage that is 'too much', it all depends on your personal finances. In our situation, my debt is fairly low interest. It is a small student loan and a car loan (not including our mortgage). In total, less than $10,000. At our current rate, it will all be paid off by 2009. Saving 30% now is just one step towards my real goal.


My real goal is to eventually save 50% of my income. That is, 50% of my wife and my income combined. How? Or more importantly, what the heck am I thinking? First, saving 50% means we are really dependent on only 1 income, so a long job loss really wouldn't hurt our lifestyle. Secondly, not all of the 50% would be going into saving for retirement or investments.

Let's say 25% of my income is going into long term funds. 401ks, Roth IRAs, 529s for the kids, and so forth. My debts are paid, my emergency fund is well established, my bills are stable. I still want to save another 25%. Why? For all the things that people usually finance. That 25% goes towards luxuries, ie "spending cash" that would typically be financed. Want a car? We can just buy it. Want to remodel our kitchen? We just pay for it.

So we have a lifestyle adjusted to half our income, plenty of savings for retirement and future college expenses, emergency cash, and a bunch of savings to buy what we want like additions to our home, a car, a boat, you name it.

What's crazier, my plan, or taking out a home equity loan and paying the bank a bunch of interest so we can have a new bathroom?