Over the years, I have made many budgeting mistakes. In this post, I will try to list a few of the big mistakes I have made. I am talking here about mistakes in the way I did my budget. And also 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 much better off if I had known this a few years ago.
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 savings rate
I have had a budget for all my independent life. I have always kept my spending under control. But, I was mostly considering my income as my limit. I was happy when I could save 500 CHF at the end of the month. This 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 is called lifestyle inflation. And this is something everyone should really 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 certain part of your salary. This 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.
I consider my savings rate as my most important budget metrics. But, the exact number you need strongly depends on your goals. Not everybody wants to retire early. Depending on your goals and the time to reach them, you may need a higher or lower savings rate. The important thing is not to spend all your salary. And not to increase your lifestyle too much when your income increases.
Since this time, I have even been able to save more than half my income on my best month.
2. Using Swisscaution as deposit guarantee
The second of my budgeting mistakes was to pay for Swisscaution. I really did not think enough when I chose to use Swisscaution. This is a gigantic scam. I should never have paid them.
In Switzerland, when you rent an apartment or a house, you have to deposit a guarantee in the bank. This is something like two or three months of rent. It depends on the owner of your apartment or house. This is deposited in your name and the name of the owner. It is blocked for as long as you rent the apartment and in case of damage, it can be used to cover them.
There is another option: Swisscaution. They will act as insurance covering the guarantee. For that, you will pay a yearly fee, depending on your rental price. With that, you do not have to deposit a large sum of money in the bank. It sounds good, but when you do the math, Swisscaution is a very bad deal. Instead of keeping your rental guarantee in a bank with a very small interest, it is placed in insurance with a large negative interest. So why did I take it? I was lazy… 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 definitely deposit a rental guarantee in a bank for my next apartment. I am getting information to see if it is possible to change from Swisscaution to a rental guarantee. 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 / 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 to have a real office. Since I am spending 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 that was offered for rent. In the beginning, the new apartment was only 1050 CHF per month. It was really fair. For 140 CHF per month, I could have one more room. However, the owner was going to do a lot of improvement and thus increase the price. When they told me the new price of 1300 CHF per month, I hesitated. But not long enough. I really liked this apartment so I took it.
I do not really regret it since I really like where I am living now. Moreover, now we are two living in this apartment. However, I regret having taken an apartment too expensive. For a single guy it was not reasonable. Especially considering my salary at that time. Since that time, my rent was reduced to 1247 CHF per month. That is great, but still could be better off with a cheaper apartment.
For the next apartment, I need to think longer and consider exactly the cost of the new apartment. I should have set a strong limit to the rent and eliminated this apartment as soon as I found out the new price.
4. Using Swiss Life Select
Another thing I am not really proud of is to have paid for the services of Swiss Life Select.
For those that do not know, Swiss Life Select (SLS) is a financial planning company. They cover insurances, budget, retirement planning and even investing. “Normally”, they do not contact you unless somebody gave them your contact information. They “normally” only work like this. But I have some doubt about this (hence the “).
So, they contacted me and proposed me to meet one of their advisers. 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 me to change my car insurance. This I did since it was indeed cheaper than mine. I also accepted to take on a legal insurance. I have some doubt now regarding this one. At first, they told me they could help me with my taxes, but they did nothing for this. They also told me they would contact me again to have opportunities to invest in better funds in their bank.
So why I am 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 to sell as many products as possible. Second, they said they would contact me again to offer me some investing opportunities. They never did! This is probably fortunate since I have then discovered that their funds are too expensive. If they really cared about you, they would offer you low-cost index funds. But they care mostly 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 there was. As for the 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 many contact information from you as possible. I only gave them the contact that accepted I gave their number away. I will never give a contact number from a person without asking first. So in the end, only a few people accepted. And the SLS adviser was not too happy about it.
Overall, their service is worth 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 the service they are offering.
5. Not correctly budgeting for vacations
I am not very good at budgeting for vacations. And I am not very good either at being frugal when I am abroad. This is not a winning combination. At least, I budget very correctly the transportation and the lodging. My problem is that I do not really have a budget when I am there. And my biggest issues is when I am in a country cheaper than Switzerland. Like China. I have a tendency 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 expenses :S
For our next vacation, I will make a better vacation budget. I will not only carefully budget the early expenses (planes and hotel). I will also plan a budget for the expenses while on vacation. This means planning how much we can spend on food, gifts, trips, and activities. This should let me avoid having big surprises when
6. Not considering big expenses
There are many expenses that come as a big 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 have a tendency of not planning for them. Sometimes, I have a very good month with none of these expenses. This makes me believe my month is very good and I spend a bit more. The problem is that they are regular expenses and their fees should be spread out on the entire year.
The easy solution for this is to spread the expenses on several month. But I do not really like this since the budget does not fit reality. Since now I am saving much more than before, this 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 very good solution to this problem.
7. Spending too much on computers
The last of my budgeting mistakes has been to spend way too much on computers and For many things, I am quite frugal. For instance, I spend very 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 huge tower case with two computers inside and I have three monitors. This is probably worth something like 5000 CHF. And this is not the worse. I also have servers. I have a huge computer rack (240 cm tall) with seven servers and some 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 also 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. This made me focus on my budget much more. So this is not so bad :) And also, managing my 10 computers installation was starting to take some time ;)
I do not regret spending money on this. This 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 am going to 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. In the future, I will focus more on my savings rate. And I will think longer about the true value of some of the things I am purchasing. I should only buy things I will really use and services that have 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 actually 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 9 biggest investing mistakes. Everybody does mistakes. The important thing is to learn from them. And never repeat your mistakes.
What about you? What big budgeting mistakes did you make?