If you include the $420 debt paydown I saved 37% of my gross income. Is that the right way to count it?
Aside from all the talk about tax differed accounts and all that jazz,
I read this as simply a question of whether paying debt counts in the "savings rate" calculation, and to that a simple "yes" would suffice.
The net effect is that your net worth is increasing by the amount you are putting aside, whether to debt or to savings.
True, at some point in your non-mustachian past you did spend that debt on something, but what's done is done. As of now, you are spending money on goods or services by paying down old interest bearing debt. Not paying interest is effectively equivalent to passive income. Once that debt is paid, you have free up an amount of cash (which was going to payments) which you have been living without, which can now be transferred to an equal amount of monthly savings.
I look at it simple:
It doesn't matter what you do with those savings. Sure, investing them and generating passive income is wise, but savings rate is just savings rate. You could stick it all under the mattress in cash, and its still money you are saving.
Income would be all money coming in from all sources... which you can actually spend.
Your discretionary income.
I.e. whatever the number says on the very last line of your paystub. For purposes of savings rate, ignore any taxes or adjustments in either direction to your gross pay, because you have no control over them. (Exception would be retirement accounts, where you do choose how much goes into it - that counts as income)
Then, look at how much of your discretionary income was spent on stuff - on everything, no matter what it is - and how much went into some form of savings (or debt repayment)
Total amount saved / Take home pay = savings rate