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Over the years, I have made many budgeting mistakes.
In this article, I list a few of my big budgeting mistakes. I am talking here about mistakes in the way I did my budget. And I will also talk about spending mistakes. Some of the mistakes are not a big deal. But some of the others made me spend too much. Overall, I would be better off if I had known this a few years ago.
You can also find out how I fixed my budgeting mistakes. I have learned a lot from my budgeting mistakes, and I hope you can learn a lot from them too! The idea is, of course, to avoid them now that you of them!
1. Not considering my savings rate
I have had a budget for all my independent life. I have always kept my spending under control. But, I was primarily considering my income as my limit. I was happy when I could save 500 CHF at the end of the month. It was good at the beginning when my salary was low. However, as my salary grew, so did my spending. I did not realize it. But my lifestyle was becoming increasingly costly. This problem is called lifestyle inflation. And this is something everyone should be careful about.
In itself, it is not very bad. But if your goal is to save some money, you should try to save a specific part of your salary. It is your savings rate. And then, if your salary increases, so should your savings. After I realized this, I started being more frugal to increase my savings rate. I am now able to save much more money each month.
Now, I consider my savings rate as my most essential budget metric. But the exact number you need strongly depends on your goals. Not everybody wants to retire early. You may need a higher or lower savings rate depending on your goals and the time to reach them. The important thing is not to spend all your salary. And not to increase your lifestyle too much when your income increases.
2. Using Swisscaution as a deposit guarantee
The second of my budgeting mistakes was paying for Swisscaution. I did not think enough when I chose to use Swisscaution. I should never have paid them.
In Switzerland, when you rent an apartment or a house, you must deposit a bank guarantee. This guarantee is something like two or three months of rent. It will depend on the owner of your apartment or house. The guarantee is deposited in your name and the name of the owner. The money is blocked for as long as you rent the apartment; in case of damage, you will use it to cover them.
There is another option: Swisscaution. They will act as insurance covering the guarantee. You will pay a yearly fee, depending on your rental price. With that, you do not have to deposit much money in the bank. It sounds good, but when you do the math, Swisscaution is a terrible deal.
Instead of keeping your rental guarantee in a bank with minimal interest, it is placed in insurance with a significant negative interest rate. So why did I take it? I was lazy, and I did not do the math. And I paid the price for it. At least, it was not too bad of a price.
I will never advise Swisscaution to anyone again. And I will deposit a rental guarantee in a bank for my next apartment. I am getting information to see if changing from Swisscaution to a rental guarantee is possible. But it seems very difficult, and I will probably move in the coming years, so it may not be worth it.
3. Taking an apartment too expensive
My first apartment was a very cheap two bedrooms apartment. I was paying 910 CHF per month, including all fees. It was small but still enough for a single guy. I lived there for around two years. Then, I decided to have one more room for a real office. Since I spend a lot of my time in front of my computers, this made sense. However, this would not have been necessary.
I went on a quest to find a better one. I found a very good apartment. In the beginning, the new apartment was only 1050 CHF per month. It was fair. For 140 CHF per month, I could have one more room. However, the owner would make many improvements and thus increase the price. I hesitated when they told me the new price of 1300 CHF per month. But not long enough. I liked this apartment, so I took it.
I do not regret it since I had a good time. However, I regret having taken an apartment that was too expensive. It was not reasonable for a single guy, especially considering my salary then. Since then, I have reduced my rent to 1247 CHF per month. That is great, but I would have been better off with a cheaper apartment.
4. Using Swiss Life Select
Another thing I am not proud of is having paid for the services of Swiss Life Select.
Swiss Life Select (SLS) is a financial planning company for those who do not know. They cover insurance, budgeting, retirement planning, and even investing. “Normally,” they do not contact you unless somebody gives them your contact information. They “normally” only work like this. But I have some doubts about this (hence the “).
So, they contacted me and proposed I meet one of their advisors. The first meeting is free. First, they ask you a lot of questions. And then, they establish your financial profile and propose things to improve it. The second meeting with the solutions is not free. You have to join Swiss Life Select. There is a one-time fee of 295 CHF. I accepted their offer.
They proposed I change my car insurance. This I did since it was indeed cheaper than mine. I also agreed to take on legal insurance. I have some doubts now regarding this one. At first, they told me they could help me with my taxes, but they did nothing about this. They also told me they would contact me again to have opportunities to invest in better funds in their bank.
So why am I not happy with them? For several reasons. First, they say they do not get paid on commission. But this is not true. SLS employees are paid based on the products they sell. So they have an interest in selling as many products as possible. Second, they said they would contact me again to offer me some investing opportunities.
They never did! It is probably fortunate since I discovered that their funds are too expensive. If they cared about you, they would offer you low-cost index funds. But they care most about the bonus they make on selling you new products. Third, everything they offered me I could have had from my existing insurance manager. And he is free.
And after this, I found out that the car insurance they sold me was not the cheapest. As for retirement planning, I already knew most of it. And I could have read it on the Internet, again, for free! And finally, they are trying to get as much contact information from you as possible.
I only gave them the contacts that were willing. I will never provide a contact number from a person without asking first. So, in the end, only a few people accepted. And the SLS advisor was not too happy about it.
Overall, their service costs 295 CHF. You can check insurance offers online with many websites today. Even if it is a pain, it is free. And a lot of insurance managers will offer this service for free. And you should not invest through their funds. You should invest in low-cost index funds. I should have thought longer about the real value of their service.
If you want to know more, I have an entire article on why you should not use Swiss Life Select.
5. Not correctly budgeting for vacations
I am not very good at budgeting for holidays.
And I am not very good either at being frugal when I am abroad. It is not a winning combination. At least, I budget the transportation and the lodging very correctly. My problem is that I do not have a budget when I am there.
And my biggest issue is when I am in a country cheaper than Switzerland, like China. I tend to consider everything cheap and do many small expenses. Unfortunately, these small expenses add up. And I only realize this when I am back at home doing the total of my costs!
For our next vacation, I will make a better vacation budget. I will not only carefully budget early expenses (planes and hotels). I will also plan a budget for the expenses while on vacation. It means planning how much we can spend on food, gifts, trips, and activities. It should let me avoid having big surprises when
6. Not considering big expenses
Many expenses come as a hefty bill.
For instance, I pay car insurance only once a year. It is the same for my home insurance or my legal insurance. And the same with parking at work. I pay the awful Billag tax every year as well. I pay the power bill every three months.
There are also a few months when I do not pay taxes. I tend not to plan for them. Sometimes, I have an excellent month with none of these expenses. It makes me believe my month is very good and I spend more. The problem is that they are regular expenses, and their fees should be spread over the entire year.
The easy solution for this is to spread the expenses for several months. But I do not like this since the budget does not fit reality. Now I am saving much more than before. This has improved this problem. I am more careful. Also, I am trying to think in advance of possible expenses like this. But I do not yet have a perfect solution to this problem.
7. Spending too much on computers
The last of my budgeting mistakes is spending too much on computers. For many things, I am pretty frugal. For instance, I spend little on clothing, going out, and groceries. However, I do have a problem with spending on Technology. I am a big geek for computers and servers. I have played computer games for more than 15 years. And I also like home automation. All this did not come cheap at all.
My desktop computer is a large tower case with two computers inside, and I have three monitors. Together, it is probably worth something like 5000 CHF. And this is not the worse. I also have servers. I have a very tall computer rack (240 cm tall) with seven servers and networking utilities.
(I am not kidding, I have this in my office, at home)
I have probably spent around 6000 CHF on these servers. Also, I have a custom media center, a large flat-screen TV, and a home cinema system. For probably 2000 CHF more. Next to this, my home automation system is much cheaper. I probably spent about 1000 CHF on it. Aside from this, I have a closet full of pieces and components.
And everybody thinks I am crazy, but I can live with this!
Then I realized how much I was spending on these items and how little I was saving. It made me focus on my budget much more. So this is not so bad. And also, managing my ten computer installations was taking too much time!
I do not regret spending money on this. It has been and still is a lot of fun. But I went a bit crazy about it. I have a lot of material that I do not use today. And it takes a lot of room! I am planning to downsize a bit. I will reduce the amounts of servers I am using. For this, I will dismount a few servers and sell the parts. This will save a lot of room and maybe bring some money. If possible, I may also go for a smaller computer rack. And I have to go through my computer parts stash to save room.
As you can see, I have had my share of budgeting mistakes. Since this blog is about transparency, I wanted to share them with you.
I have learned a lot from my mistakes. In the future, I will focus more on my savings rate. And I will think longer about the value of some things I purchase. I should only buy things I will use and services of real value.
I do not have a problem with my budgeting mistakes. They taught me a lot. Moreover, I was smart (and lucky) enough not to get into debt. So my mistakes can seem of lesser importance to some people. That is a good thing for me!
My budgeting mistakes were not my only mistakes. Recently, I wrote about my nine biggest investing mistakes. Everybody makes mistakes. The important thing is to learn from them. And never repeat your mistakes.
What about you? What big budgeting mistakes did you make?
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