“Where’s all the money gone?” If you find yourself regularly asking this question at the end of the month, the 50-30-20 rule may be able to help you save some money. We explain how this saving method works and how you can use it.
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Putting money to one side and still having enough to enjoy yourself? It can be done! A particularly easy and popular method of giving yourself a financial safety net is the 50-30-20 rule.
The 50-30-20 rule promises to make saving easy. This saving method is easy to understand: your monthly income is split into 50 percent fixed costs, 30 percent leisure and 20 percent savings. This means you can pay your monthly bills, fund your own lifestyle and put some money to one side. Sounds good. But how exactly does it work, and can this rule help you save a small fortune?
Let’s look a bit deeper at the individual parts of this saving method.
Half of your monthly income should be used for repeated and unavoidable costs. These are the daily necessities, such as rent, health and other insurance costs, Internet and electricity bills, food costs and travel tickets.
As an example, if your take-home pay after tax is 5,000 francs, you should plan around 2,500 francs for these essential costs. If your fixed costs exceed 50 percent of your income, you should take a closer look at them.
As tax in Switzerland isn’t deducted directly from income, you should set aside around 10 percent of your gross income for taxes. This can of course vary from one place of residence to another. The The link will open in a new window tax calculator at admin.ch can help you work out the exact calculation.
The biggest expense is usually rent. Changing this requires time, courage and a bit of luck. However, this is where you have the chance of making the biggest savings, so weigh up your options. Alongside your rent, it’s also worthwhile comparing other fixed costs like insurance and changing to a cheaper provider if possible.
You can even save money when shopping. Look out for and take advantage of targeted sales. Simply planning ahead by checking what’s in your fridge and writing a list before going shopping helps you buy only what you need and saves you money. What’s more, you’re helping to protect the environment, as buying less unnecessary food means less food waste.
According to the 50-30-20 rule, a third of your monthly income can go towards personal needs. This portion is used for things that you enjoy and make you happy, such as costs for trips, restaurant outings, new clothes, gym memberships and so on. You should also plan to fund your holidays with this portion so that you aren’t diving into your savings.
It also includes subscriptions for streaming services like Netflix and Spotify as well as newspapers and magazines. It may be worth asking yourself here if cheaper alternatives are available, especially if something new comes onto the market.
In our example, you would have 1,500 francs available for your personal needs. That works out to 375 francs per week, or 18,000 francs per year. According to the rule, these costs should not exceed one-third of your income. However, there are sometimes months in which you don’t spend as much, allowing you to use this leftover money to fund something in a future month.
The last 20 percent of your monthly income is saved. It’s advisable to transfer this to a separate account or save it in a custody account.
This money is intended to help build a financial safety net and meet your savings targets as well as help you achieve your dream goals. This could be buying a new car, going on a world trip or getting married, for example. Payments into your pillar 3a account are also taken into account. This is worthwhile not just to save up a financial safety net for the future, but also to save on taxes.
It’s a great help if you know what you’re saving for. It’s a bit like doing exercise: you can do it without any clear goals, but you feel much more motivated when you have a goal in mind.
Going back to our example, you would save 1,200 francs per month or 14,400 francs per year. It’s also a good idea to invest money. You can do this with minimal effort with a long-term ETF saving plan, for example. The more you put into a saving plan like this, the greater the returns you can get from compound interest.
If you have debts, it’s a good idea to save more than 20 percent. It’s important that you include these in your expenses.
An important requirement of the 50-30-20 rule is that you have a overview of your budget. You should keep a close eye on your income and expenditure. Also think about how much you expect to deduct from your monthly income for taxes. Only after you’ve done this do you have the amount you can apply the 50-30-20 rule to.
If you think this is easier said than done, the following tips might help you get an overview of your own incomings and outgoings.
Work out all of your expenses for a month and write them down. Which of these are fixed costs and which are leisure? Have you got holidays planned? This helps you get a feel for the costs you have to pay and might help you find some areas to save.
There is a wide range of apps available that help you plan your expenses and save money. Here are five chosen apps you can use to help get an overview.
By the way, there is a useful budgeting function for PostFinance customers under “My analyses” in e-finance or the PostFinance App.
If you pay your fixed costs straight after getting your monthly salary, you can better see what you have available. It’s therefore useful if these costs come directly out of your account through a standing order. You can also set this up for your 20 percent savings portion if you want. This way, 30 percent of your salary will still ideally be left in your account.
You can find more tips on budget planning in our blog post “Budgeting made easy: five tips on budget planning”.
The 50-30-20 rule is naturally easier to use the more income you have. Many find it difficult to set aside 20 percent of their monthly salary.
Try out the rule and get an overview of your budget. Once you have an overview, you may quickly find out what actions you should take to save.
