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«Pay yourself first. It’s the only way to build your wealth.»

Three times 10%: How to save for a better future

Felix Niederer

Wealth makes dreams come true. Or simply makes you feel good. But how do you build up capital if you don’t yet have any?

How come that person can afford to go on another amazing trip? What did that couple use for the deposit on their house? How does he manage to live without a job for six months while starting up a company? If you haven’t built up any capital but would like to, you will soon start asking these sorts of questions.

Some people can make their dreams come true because they were born rich. But for most of us, money is not something we were born with. This does not mean we have to let go of our dreams. We just need to be a little more strategic if we want to achieve them.

Many people decide, therefore, to start saving. And almost as many people fail, month after month, because the plan usually goes like this: I’ll save what’s left over at the end of the month. But there’s usually very little – if anything – left. If you approach saving from this perspective, the very thought of it will quickly frustrate you.

It’s better to face the facts: saving always means doing without. But saving also means taking a decision. Deciding that you would prefer to have more in the future; for example, rather than getting a take-away lunch today, dining out in Cape Town sometime in the future.

You must make this decision your priority. Pay yourself first. It’s the only way to create wealth. And that means month after month, the first thing you do when your salary comes in is build up reserves.

Saving automatically is best

Technically, it’s very easy to make putting money aside the first thing you do. If you set up a standing order with your bank, your money will be in another account before you can blink. And then it’s no longer available for day-to-day spending. It’s that simple. And for you to stick to it, your savings plan should be simple.

Three times 10%

The only question left is how much. Here, too, we need to make our lives easy. I suggest starting with a simple rule of thumb. Save 30% of your gross income, divided into three equal parts of 10%. (When you have stuck to your savings plan for a few months, you can fine-tune the numbers and perhaps adjust them to suit your personal situation even better. But the rule of thumb of three times 10% should be good to begin with.)

But first, let’s briefly reflect on the reasons why you are saving. This includes everything that will make your life better in the future. Even your dreams. And more besides. These three topics are important for wealth creation:

  • Your next year. Save 10% for that.
  • Your big goals. Invest 10% for these.
  • Your retirement. Put 10% into your pension for this.

Save for next year

Will you be going on holiday? Do you buy presents in the run-up to Christmas? Do you sometimes have to get a couple of teeth replaced or four brake pads for your car? There are many things that you will not need every month, but at some point in the year you definitely will.

Set aside 10% of your income for next year’s emergencies and luxuries. You will need this money during the year. This also means you have to be able to access your savings quickly. A traditional savings account is ideal for this purpose. It is highly liquid – so you shouldn’t expect a big return from it.

Invest for the big goals

Do you want to buy a house one day? Go on a round-the-world trip? Found a company? Maybe you already know the big goal you want to spend your wealth on, or maybe your dreams will take a while to firm up. If so, it feels good to be ready for whatever the future brings.

So put 10% aside for your bigger goals, too. Since you don’t need the money immediately, you can think longer term. Over a medium or longer-term horizon, the success of your investments is not just down to what you pay in, but also to the returns you achieve. And which you can reinvest every year. This is how compound interest works its magic.

You need the right type of investment for this. A professional asset manager such as True Wealth will give you optimised proposals for medium to long-term investment. Pay in monthly or set up a standing order. And watch your fortune grow.

Providing for retirement

At some point in time, you will retire. Although you’ll receive Old-Age and Survivors’ Insurance (OASI), it won’t be enough to live on, which is another reason for creating wealth. The state thinks this is a good thing, so it gives tax breaks on payments you make into your pension fund and third pillar private pensions.

So set aside 10% for your old age as well. Your employer automatically pays part of this into your pension fund. You pay the remainder into your third pillar private pension (employees can save up to CHF 6,768 a year), or as an additional pension fund purchase (your pension fund will be happy to calculate how much you can buy in).

One standing order per target account

First, the savings account for next year’s cash needs. Second, the deposit account for your investments. Third, the account for your third pillar pension (and perhaps fourth, your pension fund). This is manageable. So work out the three (or four) accounts to which your automatic payments will go each month. Specify the amounts and set up a standing order for each account. Done and dusted.

70% for daily life

After your reserves have left your salary account, you still have 70% of your income available for day-to-day expenses. And that’s a good thing: you can’t accidentally spend money that’s no longer in your account. Allocate the 70% earmarked for your daily needs as follows:

10% for pocket money. Let’s start with things you enjoy spending money on. Buy what makes you happy. Would you rather go out for a really nice meal? Would you sooner buy a pair of beautiful shoes? The main thing is that you make a conscious choice (and don’t spend more than 10% of your income on it).

60% for essentials. This should be enough to pay for all your essentials: fixed costs, such as rent, tax and insurance, and bills, and your regular spending on food and basic clothing needs.

How you create wealth

On average, for Swiss households earning CHF 82,000 a year, 60% is enough to cover their essentials. At least that’s what the figures in the Federal Statistical Office’s 2019 Household Budget Survey say.

If your actual income is higher, you should be able to save even more each month. And if your income is not (yet) that high, we encourage you to set goals that are more ambitious than those of the average Swiss person.

Your wealth will grow. And your future will thank you for it.

An earlier version of this article was published on the 13.11.2015

Disclaimer: We have taken great care with the content of this article. Nevertheless, we cannot exclude the possibility of errors. The validity of the content is limited to the time of publication.

About the author

Felix Niederer

Founder and CEO of True Wealth. After graduating from the Swiss Federal Institute of Technology (ETH) as a physicist, Felix first spent several years in Swiss industry and then four years with a major reinsurance company in portfolio management and risk modeling.


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