Creating a Budget – It’s as Easy as This

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How budget planning works – Tips on the path to financial independence

A budget is an important component of personal financial management. It’s about creating a realistic picture of your financial situation with a budget plan. Your monthly budget controls your income and expenses, allowing you to plan sensibly and use your money more consciously. Additionally, a budget helps you achieve your savings goals. In short, you have control over your finances. In this post, we’ll show you what should be included in a budget, how often you should review it, and provide concrete tips for optimizing your expenses.

Content

What is a budget?
When is a budget useful?
What are the advantages of a budget?
What belongs in a budget?
How do I allocate my budget?
What is the 50 30 20 rule?
How often should I review my monthly budget?
What to do with the saved money?
Conclusion
FAQs

What is a budget?

A budget is a financial plan that sets out income and expenses for a specific period. It’s an essential tool for personal financial planning and helps to keep track of finances. A budget can be created for a specific period, such as a month or a year, and should be reviewed regularly to ensure that finances are aligned with goals.

When is a budget useful?

Fundamentally, a budget is useful for gaining an overview of your ongoing income and expenses.

A budget is particularly beneficial when aiming to achieve a specific savings goal within a predetermined period. The budget “educates” us to manage our hard-earned money more consciously and focuses on unnecessary expenditures. Additionally, it helps you identify how much saving potential you have and how much money you can set aside per month. If it turns out that this is insufficient to reach your savings goal within a reasonable timeframe, you can consider eliminating certain expenses and tightening your belt.

A budget is also useful if you want to consume more consciously. Typically, it makes sense to first gain an overview of all expenses, analyze them, and then optimize them.

What are the advantages of a budget?

A budget supports you on the path to financial independence and offers several advantages.

Better control over your finances and improving your financial independence are important benefits of a budget.

Advantage No. 1 – Overview and Control

At a glance, you see the total amount of your monthly expenses and how they contrast with your income. This gives you a clear understanding of your financial capabilities, allowing you to see whether your expenses exceed your income or if you have additional saving potential.

Advantage No. 2 – Avoidance of Debt

Durch die sehr transparente Aufstellung deiner finanziellen Möglichkeiten verhinderst du es, langfristig mehr auszugeben als du einnimmst. So vermeidest du Schulden.

Advantage No. 3 – Achievement of Savings Goals

By optimizing your expenses, you also reach your savings goals faster, another benefit of a budget plan – and simply a good feeling.

Achieve your savings goal faster

Advantage No. 4 – Conscious Consumption

Through a transparent breakdown of all expenses, you can question every single item in your budget. Often, unnecessary expenses can be reduced or even completely avoided. Your consumption becomes even more conscious and sustainable.

Advantage No. 5 – Prepared for the Unexpected

A comprehensive budget plan includes an emergency fund, providing you with a solid reserve for unforeseen circumstances. This prepares you better for unexpected expenses.

Nest Egg

A nest egg is intended for financial emergencies. These are genuine emergencies, not just the urgent desire for a beach vacation. As a safety net, your nest egg remains untouched in your account and is available to you at any time. This helps you maintain your financial independence even if something unforeseen happens that wasn’t accounted for in your budget plan.

What belongs in a budget?

As mentioned earlier, all income and expenses are included in your budget plan.

While income items usually represent clear positions in the budget, it’s often irregular or smaller expenses that aren’t always top of mind. For example, around 10 Swiss francs per month for a music streaming service subscription or 15 Swiss francs account maintenance fee at your bank. Yet, “every little helps,” and these many smaller amounts add up to a substantial larger sum. Additionally, expenses that occur irregularly or annually, such as vehicle registration fees or radio and television license fees, are also easily forgotten.

To make it easier for you to remember all expenses and income in your budget plan, the Swiss Budget Counseling Association has a good budget template. Like many other budget plan templates available online, it is free of charge.

Here’s a preview of the most common items in a budget:

Income

Earned income and secondary income

13th month salary or bonus, etc.

AHV and pension fund pensions

Insurance benefits, such as disability pensions or annuities

Any alimony payments you receive

Asset income

Any rental income from leased properties

When it comes to expenses, a distinction is made between wealth-reducing and wealth-neutral ones. Wealth-reducing expenses refer to anything that diminishes your assets. Specifically, this includes paying bills for services and products as well as alimony or maintenance payments.

Expenses (wealth-reducing)

Rent or mortgage interest

Leasing installments or credit card payments

Groceries

Health insurance premiums

Radio & TV fees

Transportation (gasoline, public transportation tickets, repairs, insurance, vehicle registration fees)

Leisure activities

Vacations

Telecommunication

Energy costs

Taxes

Insurance (household, liability, legal protection, etc.)

Club memberships

Subscriptions to magazines, newspapers, streaming services

Medical expenses

Children’s pocket money

Clothing

Cosmetics & hygiene products

Cleaning supplies & household items

Furniture and furnishings

For wealth-neutral expenses, you can count anything that leaves your salary account but still remains in your possession. This includes, for example, your monthly savings amount as well as the amortization of your mortgage.

Expenses (wealth-neutral)

Contribution to the 3rd pillar retirement savings account

Savings deposited into a savings account

Nest egg

Reserves for future purchases

Amortization of your mortgage

Contribution to an insurance savings policy

Investment in your long-term investment solution

How do I allocate my budget?

Now that all budget items have been identified and their respective expenses allocated in the budget planning, the question arises of a sensible allocation.

A common practice is to divide expenses into three categories:

Fixed costs
Leisure or Lifestyle
Sparen

Fixed costs

This includes expenses such as rent, groceries, insurance premiums, electricity, and communication.

Leisure or Lifestyle

Under this category of monthly budget, expenses like furniture & furnishings, concert tickets, clothing, or a date at a romantic restaurant fall.

Saving

Investing in your investment solution, amortization of your mortgage, or contributions to your pillar 3a retirement savings account are good examples of the saving category.

What is the 50-30-20 rule?

Of course, there are many different ways to allocate expenses sensibly. One strategy to support wealth-building is to apply the 50-30-20 rule.

In this rule, income is proportionally distributed among the aforementioned categories: 50% to fixed costs, 30% to leisure or lifestyle expenses, and 20% to savings.

Ein Kuchendiagramm stellt die 50-30-20 Regel dar.

How often should I review my monthly budget?

In general, a monthly budget should be reviewed once a month to see if one has been able to adhere to the predefined guidelines. Especially after creating or revising a budget plan, regular, usually monthly, reviews should take place. Once the new spending policy has settled in, the review can be done at increasingly longer intervals. However, it should definitely be done at least once a year.

An existing budget should also be reviewed ad-hoc, particularly when changing jobs, buying a home, or facing a move in general. Starting or expanding a family provides more than enough reason for budget creation or review.

Even if you set a new savings goal or adjust an existing one, it’s time to review your budget planning. And if you don’t have a budget yet, it’s high time to take a budget planner in hand and take control of your finances.

What to do with the saved money?

Instead of letting the monthly savings amount languish on a meager interest-bearing savings account, you should consider an investment. This applies to the nest egg that you want to save for the long term, i.e., for many years. Your emergency fund should be kept readily available in a separate account at all times. We’ll tell you more about this in our blog post about emergency funds.

Especially for smaller initial investments and regular contributions, an ETF savings plan is recommended.

By the way, you don’t need a large fortune for investing, as shown by the return calculator from findependent. For example, if you invest 200 Swiss Francs monthly over 10 years in the findependent investment solution “Brave,” you’ll accumulate over 31,000 Swiss Francs, which is more than 7,000 Swiss Francs higher than on a savings account, net, after all costs.

This brings us to another advantage of ETFs: the fees are significantly lower than with traditional banking solutions. With a findependent investment solution, you can easily and affordably implement such a savings plan. Additionally, our investment app starts at just 500 Swiss Francs. However, the biggest advantage of the findependent investment app in the context of wealth building is that you don’t pay transaction fees for regular contributions. Banks and other online providers often charge minimum commissions of, for example, 20 or 30 Swiss Francs per transaction, which is too expensive for a monthly contribution of, for example, 250 Swiss Francs. You can find more information about fees in our findependent fee calculator because transparency is important to us.

Who is findependent?

Conclusion

A budget helps you keep your finances under control. With an organized overview of your income and expenses, you not only prevent debt but also get closer to your savings goal (faster). You should regularly review your budget and critically examine your expenses.

Just as important as creating and maintaining a budget is investing your savings. Instead of letting them languish in an account with minimal interest, you should participate in the long-term growth of financial markets. An affordable investment app like findependent makes it incredibly easy for you to get started.

Learn more about investing

FAQs – questions and answers on budget and budget planning

How much does a Swiss person save per month?

According to the Federal Statistical Office, the monthly savings amount is CHF 1,710 per household.

How much money does a 20-year-old in Switzerland have?

The median is CHF 16,500, according to the latest analysis by the Federal Statistical Office in 2015.

How much savings do you have at the age of 30?

It’s CHF 27,000, not including the assets in the pension fund, says the Federal Statistical Office.

How much wealth at 40?

At CHF 72,000, you are in the top half of 40-year-olds in terms of wealth. The Federal Statistical Office last analysed the data collected as part of the SILC (Statistics on Income and Living Conditions) in 2015.

How much should you have left over at the end of the month?

If you follow the 50-30-20 rule and consistently invest 20% of your net income, you should only have what you haven’t spent of the 50 and 30% left in your account at the end of the month.