5 tips on how to better save your money

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Budgeting made easy

Mr and Mrs Swiss are European champions in saving. Nevertheless, especially in times like these, with inflation and more and more newspaper articles about recession, there are questions about how to save better. This article is about how you can optimise your savings process and save consistently in the long term.

Tip 1: Get an overview

Many people say to themselves “I don’t know how to save, I don’t spend that much”. That’s why it’s a good idea to write down and analyse your expenses. You can do this with a budget book, a budget app or your own bank’s e-banking. It is important that you ideally look at 1 year of data. This way, you can really see the expenses that occur during the year, including irregular expenses such as gifts or contracts that are paid annually.

Tip 2: Identify savings potential

Once you have an analysis, you can identify relatively quickly which issues you want to adjust. You can use the STOP-ADJUST-CONTINUE methodology to do this. To do this, you create categories within your expenditure and decide whether to either stop spending on a category, adjust the amount or keep the expenditure the same. If you want to know what a typical sample budget is, you can visit the page of the Swiss budget advisory service.

After you have looked at and analysed your expenses, you can now find alternative solutions for all the expenses you want to adjust. Examples are health insurance, insurances, telephony, internet, transport or subscriptions. Here you can usually find the same service for less money.

Tip 3: Set up a clear budget

After you have optimised certain expenses, it is important to define a fixed budget for the future that you can stick to. It is best to do this per category that you have defined. One rule that has proven to be effective is the 50-30-20 rule. This was created by Elizabeth Warren, a US senator. It says that about 50% of your net salary should be used for living expenses such as rent, food, insurance or transport. 30% of your net salary goes to fun expenses such as going out, holidays or eating out. The remaining 20% is then used for savings. For comparison: In Switzerland, the average savings rate is about 19% (OECD). So this should be possible.

Tip 4: Adjust account structure

If you have a clear budget for your expenses, it is much easier to adjust your account structure accordingly. You can work with the 3-account model.
For this, you have a salary account from which you pay your living expenses, the second account is a fun account from which you pay your fun expenses. Ideally, you also have two cards so that you can use the right card depending on your expenses. And the third account is your savings account.

Based on your budget, you set up standing orders to transfer the respective amount to your fun account and your savings account as soon as your salary is paid. The advantage: You save when the money is still there and not only if there is something left at the end of the month. This is also called “pay yourself first”!

By the way, if you are in a partnership, it makes sense to have an additional joint account into which both partners deposit and from which all joint costs are deducted.

Tip 5: Save and invest

It is important to understand that you save about 3-6 months’ salary in your savings account for emergencies. Only when you have built up these reserves does your savings rate go to other goals. It is important to note that if you have other goals such as retirement, real estate or something else, you should divide them into short, medium and long term.

Short-term goals, which will be realised in 1-3 years, you would simply accumulate in a savings account. Medium-term goals of 3-8 years, you can invest in an investment account with a medium to conservative strategy. For long-term goals, you can invest the money in an investment account with a high-risk strategy with a higher share of equities.

The logic behind this is that the less time you have, the more dependent you are on the current market situation and the less risk you want to take. The more time you have, the higher your risk of inflation and the non-realisation of compound interest, so it is advisable to counteract this with a higher share of equities.

Conclusion

The sooner you take care of your budget, the more automated it is, the sooner you will reach your financial goals. If you want to take a shortcut, use the 50-30-20 rule and switch your accounts. Then set up a standing order for fun spending and a savings account and you’re done. You’ll save automatically. The beauty of it? You can spend your fun money without a guilty conscience and you have a clearly defined savings process.

Guest article by Clara Creitz

Clara Creitz is the founder of Finelles and has been in the financial industry for over 10 years. As a financial planner, she focuses on a holistic approach to finances. With Finelles, she offers courses and one-to-one coaching on finance. Her clients are mainly women whom she helps to become financially independent.