Making payments

Ways to save money on a tight budget

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Source: Claudio Schwarz / Unsplash

Coronavirus and the associated short-time work measures have forced many households to pay closer attention to their budgets. What's more, summer holidays can put an additional strain on your wallet. Here are some tips to help you improve your finances in any situation.

Tip no. 1: review your household budget

Do you know offhand what your biggest outgoings are? Usually, the best part of your income is spent on your rent or mortgage, transport, health insurance, food and tax. There’s not a lot you can do about many fixed costs in the short term. But if you at least have a breakdown of your outgoings, you can keep track of your variable costs and know how much is left for clothes, entertainment, hobbies and so on. It's therefore a good idea to review or create a household budget. Templates are available from organizations such as Budgetberatung Schweiz (in German, French and Italian only).

Cutting smaller expenses is often the quickest way to save money. A 7-franc account management fee here, 25 francs per month for a streaming subscription there, then there’s some pocket money for the kids or a packet of cigarettes each day – such minor amounts are harder to keep track of. Here's where an app can be useful. Apps can help you record and categorize your daily, weekly and monthly outgoings. At the end of the month, the app will show you how much everything has cost. You can then critically examine each item of expenditure. Could you do without the streaming subscription and dedicate some time to those unread books on your bookcase or a bit of sport instead? Or maybe the free trial would be enough, rather than a paid subscription? How much would you save if you gave up smoking? And do you really still want to pay those (excessively) high charges for your credit card?

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Tip no. 2: cut the cost of your digital infrastructure

With many people still working from home, it is more important than ever to have a fast Internet connection. A smartphone is also indispensable. But all this comes at a price – one that is often too high. Nevertheless, people often neglect to review their deals with providers like Swisscom and Sunrise once they have signed up. Yet the price of Internet and phone plans has decreased considerably in recent years. In Switzerland, competition for customers is fierce. To attract new customers, providers regularly advertise discounts of 50% or more. If you want to benefit from such special deals, you can either cancel your existing contract or contact your provider about the cheap deal for new customers and request a discount for yourself as a loyal and long-standing customer. In the vast majority of cases, this is a quick way to successfully take some of the strain off your budget.

Tip no. 3: compare prices when shopping

On average, people in Switzerland spend some 30% of their income on consumer goods (not including transport and housing expenses). This includes smartphone plans as well as food and visits to the cinema or museum. But there are savings to be had here – without having to compromise. It's quite easy to save money when buying a coffee machine, a vacuum cleaner or a smartphone, for example. You just need to use the price comparison and ordering options available online. Even for items costing around the 50-franc mark, prices can vary by 20% or more from the cheapest to the most expensive seller. But beware of hidden costs. Some sellers, for example, include delivery in their price, while others charge extra.

Another way of saving money on non-food items is to buy an older model. These models are often only slightly different from the newer version in terms of performance and functionality, but are considerably cheaper. In the case of foodstuffs, instead of older models you have special offers. It is worth checking out the daily and weekly special offers of the major supermarkets. You can stock up on items with a long shelf life such as coffee and rice, or goods like detergent and personal hygiene products, when they are on offer. With Swiss households spending an average of 636 francs per month on food, there are considerable savings to be made.

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Tip no. 4: keep transport costs down

Getting about by bus, train or car will cost you deep in the purse. With some 7.5% of monthly household budgets being spent on transport, any savings in this area will have a tangible effect. If you are using public transport less or not at all for a particular period, you can consider suspending your GA travelcard or taking your car off the road temporarily and handing in your number plates. If you are still driving your car, you can adopt a more eco-friendly driving style to cut fuel costs. Regarding accessories, new wheels can cost a fortune. But buying just the tyres new instead of the entire wheels can save you money. You can also cut costs by washing the car and changing the wheels yourself. It can also be a good idea to switch to a more economical car. If you compare your monthly vehicle costs to the actual usage, it may even work out cheaper to sell your car and just rent one as needed. Car-sharing services and flexible car subscriptions are other alternatives.

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Tip no. 5: review your insurance policies

In Switzerland, all insurers offer the same cover for compulsory basic health insurance. Supplemental insurance policies differ in the level of medical cover provided. Ideally, these policies should complement basic insurance so that you have the right cover for your personal risk profile. Eighty percent of policyholders have at least one supplemental insurance policy. But not all are worth it. Some insurers include high deductibles in their policies while others charge high monthly premiums or place limitations on the cover provided. One policy you should keep reviewing is your car insurance. For one thing, these premiums tend to keep going down – quite significantly. For another, the insurance cover you need may change as your vehicle ages. It's also worth checking your contents and personal liability insurance cover. You can usually reduce your premiums quite easily by switching to a different provider – or by taking out a new policy with the same insurer.

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Tip no. 6: examine options for saving on your pension

Just this once, take a break from making private pension contributions. If money is tight in these exceptional circumstances, you can take a break from contributing to your pillar 3a. As you know, employees can currently pay up to 6,826 francs into a pillar 3a account, while self-employed people can pay in up to 34,128 francs. These contributions can be deducted from your taxable income when you fill in your tax return. In Zurich, for example, an employee who is single and has a taxable income of 70,000 francs can save 1,140 francs on tax by paying in the maximum pillar 3a contribution.

Bank products are flexible – unlike life insurance policies. Payments into pillar 3a are optional. If you have chosen a bank product, you can easily take a break from your 3a payments and thereby ease any cash flow worries. Insurance products do not offer this flexibility. An insurance policy requires you to make annual payments.

Instead of suspending your life insurance, you can apply for a policy loan. Another option is to cash in the policy. However, you could lose a considerable amount of money this way, particularly in the early years of the policy: the salesperson's commission, administration fees and the insurance component swallow up a substantial part of the premium payments at the beginning of the policy period. In addition, with unit-linked insurance policies, losses may also be incurred on the investment portion in difficult stock market years. Another alternative commonly offered is a waiver of premiums. Here, the capital accumulated so far remains with the insurance company until the term of the insurance policy ends. From a specified date, the customer stops paying premiums and reinvests the assets accumulated with the insurance company for the remaining term. If you do this, you will lose your insurance cover. And don't forget that if your premiums are waived, the surrender value is calculated first, which involves some losses. And it is this amount that is used for the new policy for which no premiums need to be paid. For this reason, instead of suspending the policy, it is makes more sense to cancel it and transfer the funds to a 3a account, because using a bank product gives you some flexibility again. If you don't want to lose your insurance cover for death, incapacity for work and illness, but are temporarily short of funds, you should contact your insurance company and ask if you can pay the annual premium using a policy loan.

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Tip no. 7: spend less on housing expenses

Housing costs are a substantial part of anyone's budget – often the biggest. However, there is a way to reduce your monthly rent payments. Tenants can request a rent reduction from their landlord. Rent prices are calculated using the current reference interest rate for mortgages. At the beginning of March 2020, it was reduced from 1.5% to 1.25%. Find out here whether you are entitled to a rent reduction and how to claim it.

Buying a residential property is another way of reducing your monthly housing expenses. Thanks to very low mortgage rates, monthly payments for mortgage interest are significantly lower than rental payments in most cases. However, in order to purchase a home, you need to have put aside a sufficient amount for the deposit and have found a suitable property on the market.

Another way of generating extra income is to sublet a room in your house or apartment.

And if I still don't have enough money?

Even if you’ve reduced your outgoings to the bare necessities, your income might still be too low. In such cases, you may have a temporary financial shortfall. There are a few ways in which you can resolve this. You can borrow money from friends or family, consider a consumer loan or check out crowdfunding options.

In some cases, you can also bridge financial gaps by paying for things in instalments or using your overdraft facility. An overdraft is the credit offered by a bank when you withdraw more money from your account than you have available. However, the interest on overdraft facilities can be high, and many Swiss banks no longer offer overdrafts.

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