Summary
Reflect on your plans, anticipate and prepare projects
Establishing a budget is an essential first step in regaining control of your finances. Whether we use a online calculator, the services of a broker, or the traditional method using paper, pen and calculator, a budget offers a clear vision of your financial situation. It allows you to forecast expenses, avoid the debt spiral, and save money.
According to data from the Federal Statistical Office (FSO), Swiss households can save on average 17.5% of their income.
This figure, which is still an average, nevertheless gives you an indication of the savings potential that you could make thanks to a effective management1 of your finances using a budget. Indeed, a well-designed budget is a financial plan that allows you to achieve your projects and savings goals.
Gain peace of mind thanks to a good budget
The OFS indicates that people who manage to save a substantial amount of their income are better prepared to deal with the unexpected and enjoy greater financial stability. Peace of mind is one of the main non-financial benefits of setting up a budget.
Once your planned expenses2, you no longer have to worry about their impact on your finances and you can consider them with peace of mind. With a well-established budget, it is possible to avoid unpleasant surprises and to live within your means.
Identify your future savings and free up your cash flow.
Establishing a budget allows you to reveal potential savings by reevaluating all expenses one by one. These savings can then be reinvested according to your needs and long-term goals.
Realize savings
A solid financial plan always includes a savings component for the unexpected, the development of your wealth or certain specific projects, such as the acquisition of a house. Creating a budget will allow you to clarify your savings capacity and set the amount you can save on a regular basis.
The household budget study3 reveals that saving capacity is linked to income level, but depends mainly on the proportion of income spent on fixed expenses (rent, insurance, loan repayments, etc.). Therefore, it is essential to adjust this portion of spending in the budget to increase savings capacity.
1effective management, 2planned expenses, 3Household budget study
Developing an effective personal budget is an imperative to maintain control of your finances, a necessity that is all the more pressing in Switzerland where the cost of living is significantly high. In this regard, we have designed a guide in seven steps to set up a robust fiscal plan, adapted to Swiss economic realities.
1. Conduct a financial balance sheet
Start with an accurate assessment of your income and expenses. This means accounting for all the usual income, such as allowances, subsidies, bonuses and bonuses on the one hand, and listing your fixed expenses (such as rent, insurance, subscriptions and credits) as well as variable expenses (food, entertainment) on the other hand.
2. Setting goals
Define your financial goals, whether short or long term, to be able to adapt your budget appropriately. By aligning your budget with your financial goals, you will give a precise direction to your finances, thus promoting the achievement of your goals.
3. Make a plan
After establishing the objectives of your budget, it is then possible to set budget limits for each expense categorys. Use the data collected to allocate a specific amount to each category, making sure to prioritize essential expenses.
4. Monitor your expenses
It is essential to keep track of your expenses regularly to ensure that you are staying within the set limits. Numerous budget tracking tools make this task easier by letting you adjust your expenses if necessary.
5. Make adjustments
Be flexible and willing to adjust your budget as your finances or goals change. For example, if you regularly exceed the budget allocated for a specific category, it would be a good idea to reconsider the spending limits for that category.
6. Create a security fund
It is recommended to gradually build up an emergency fund covering three to six months of expenses to deal with the unexpected without affecting your budget. This provides financial security in the face of unexpected events such as job loss.
7. Use tools and resources
From mobile applications to financial management software, there are a large number of tools that can help you manage your budget. Opt for the ones that best fit your habits and preferences in order to simplify the maintenance of your accounts.
By following these steps, you will be able to establish a budget that will precisely match your needs and financial ambitions, while adapting to your lifestyle. A meticulously designed budget is essential to achieve financial autonomy and allow you to realize your projects.
Tip 1: Choose an adapted budget timeframe
Organizing your budget according to the frequency of income and expenses makes it easier to manage it. Whether for a monthly, quarterly or annual budget, it is crucial to choose a frequency adapted to cash flow. In most cases, the budget is built on a monthly basis for employees. In this case, it will be appropriate to identify the annual expenses (such as vacations, or registration fees) and to “monthly” them by setting aside 1/12 of these invoices on a dedicated account.
For those who want to go further to optimize their long-term finances, it is possible to determine and monthly multi-year expenses such as vehicle replacement or renovation costs. Note that the monthly payment of annual or multi-year fees technically does not constitute savings as such but rather the provision of future known expenses.
This method will allow you to obtain better financial visibility. This way, you can pay your bills on time to avoid late fees and penalties, which will contribute to better cash flow management. In addition, it will make it easier to plan your expenses based on planned and unexpected events.
This approach reduces the risk of imbalances in your finances and ensures constant coverage of significant annual or even multi-year expenses, thus facilitating more serene financial management.
Tip 2: Organize your budget by expense categories and income
Categorizing your expenses into fixed and variable categories will allow you to see where your money is going. This exercise will help you identify possible financial adjustments. Fixed expenses include rent, insurance, and subscriptions that cannot be renounced, while variable expenses cover food, vacations, and other unexpected expenses. This makes it possible to prioritize essential expenses and find ways to save on those that are not essential.
Evaluate my financial commitments and my debts
A complete and honest assessment of your debts and financial commitments is an imperative step and yet too often ignored. If it is necessary to draw up a complete list of your income, as well as expenses. It is also essential to take into account your current debts to determine their relative proportion in terms of repayment in your budget.
Good to know: the 50/30/20 rule
Using the 50/30/20 rule (reserving 50% of the budget for needs, 30% for desires and 20% for savings) is a simple tool for managing your budget. However, it is necessary to adapt it to its reality and to regularly monitor your accounts in order to anticipate expenses and save effectively.
Tip 3: Conduct a complete financial statement
As part of drawing up the budget, it is necessary to estimate the expenses incurred in connection with loans and leases. To do this, you can consult your situation by requesting an extract from the central credit center (ZEK). This step will allow you to take stock of your commitments and determine the options available to you in terms of grouping your monthly payments, for example. A better understanding of your credit score and debt history will help you adjust your budget to improve your financial situation.
The Consumer Credit Act (LCC) requires lending institutions to establish a budget in order to ensure that borrowers have the capacity to repay their loans over a period of 36 months. This section looks at the LCC approach to budget planning and then presents some tips for developing a budget in accordance with Swiss regulatory requirements.
What the law says
LCC Switzerland aims to protect consumers against over-indebtedness linked to consumer loans. To do this, it requires lenders to ensure the repayment capacity of borrowers before accepting their request. This exercise aims to ensure that the borrower will be able to repay his credit without affecting his elusive portion of income referred to in article 93, paragraph 1, of the Federal Act of 11 April 1889 on debt enforcement and bankruptcy (link to the text). In other words, the law plans to determine the amount of “available budget” that the borrower will have once he has paid his constrained expenses identified by law, such as rent, taxes, health insurance, but also current credits and leases.
Please note that the budget established under the LCC is based on estimated values concerning basic expenses (food, clothing, leisure). However, even if the budget under the LCC remains approximate, it has made it possible since its promulgation in 2001 to effectively combat over-indebtedness in Switzerland.
The lessons of a law that has proved its worth
A balanced budget starts with the control of constrained expenditure, i.e. the objective evaluation of all compulsory expenditure. However, it is possible to adapt these expenses within a financial plan that requires time to bear fruit.
Any new recurring expense requires a budget analysis. When considering a significant new regular expense such as new rent or leasing, make sure that you will be able to take on this new burden by establishing a new budget.
Update your ZEK data regularly. The latter play an important role in access to credit, leasing or even a mortgage. It is recommended to update your information and to consolidate your commitments as much as possible to reduce your financial burdens and increase your chances of being able to finance a new project.
The advantages of a controlled budget
Strengthened solvency and better credit conditions: Good management of your budget allows you to improve your credit score and to more easily obtain the best financing
Proactive and serene management of your finances: By adhering to the principles of LCC through your budget, you are taking a proactive approach to managing your finances. This allows you to plan for the future with confidence, knowing that you are well prepared to meet your financial commitments.
The law on consumer credit in Switzerland underlines the importance of prudent and informed budgetary management. By understanding legal requirements and integrating this knowledge into your financial planning, you can not only avoid the pitfalls of over-indebtedness but also optimize your long-term financial health. The key is to manage your budget by regularly reviewing the structure of your expenses while aiming for long-term financial goals.
For those looking to build a successful budget, there are a multitude of options out there. From financial advisors to digital solutions, the spectrum is wide. As a private credit broker, Credial offers you support and a detailed analysis of your financial situation in order to help you develop your budget.
What can Credial do for your budget?
Our advantage lies in our global approach which aims to simplify the management of your budget. Setting a budget is the first step towards greater financial freedom. We offer to help you optimize your budget and your expenses registered with the ZEK.
Complete and non-binding ZEK and CRIF analysis: Credial carries out a detailed analysis of your solvency by examining your ZEK and CRIF histories. This crucial step makes it possible to determine the solidity of your budget and to identify possible financial incidents or anomalies, by proposing adapted solutions.
Calculation and optimization of your budget: Our team of experts calculates your budget accurately, taking into account your current income, expenses, and commitments. We explore potential savings to optimize your financial situation.
Optimization and grouping of your commitments: Each situation is unique. This is why your Credial advisor offers you personalized and confidential support. Our teams take care of the complete processing of your file of redemption of your commitments registered with ZEK.
Make an appointment with Credial. More concretely, we will be able to assist you in the accurate assessment of your commitments and provide you with all the useful information allowing you to optimize the expenses related to your loans and leases.
Sources:
