Unrealistic savings goals


#1

Fellow mustachians,

so here is something that I have seen time and time again, not necessarily on this forum but on reddit and on other FI related forums and blogs: The savings rates are unrealistic and probably don’t take into account the living expenses, painting a distorted picture about savings and doing a disservice to those who are just starting out on their fire journey.

I so often see “80% savings rate” “60% savings rate” being thrown around. But how real are those numbers?

I made a calculation and you might be surprised how many expenses are unavoidable.
Here is an example.

We are talking about a taxable income of 100000chf p.A for simplicity (that translates roughly to 140k-150k gross income)

If you live anywhere in a populated area in Switzerland where you could realistically achieve 100000chf without dumb luck or special skills, you will have to pay a lot in rent.

I would say the medium rent (conservative estimate) for a small family (3.5 rooms) is 2500chf.

30000chf annually

there goes your 80% savings rate … unless you live in a WG forever. But we are far from done yet.

Taxes for a family of two on that income (no kids) 12716chf

If you and your partner do not have a car and are commuting locally, I would add at least 1400chf for public transportation. If you are unlucky and one of you has to commute out of town, add about 3000chf for a GA.

Right now we are looking at 44116chf best case, bringing down the savings rate below 60%.

We forgot something important and that is health insurance. Lets say best case you never get ill and choose the cheapest health insurance every single year.

2 people Assura with 2500 franchise is 6300chf p.A. (might be cheaper in some places, more expensive in others)

Right now we have reached 50416chf, bringing the savings rate < 50%.

You have not eaten so far, which would probably be a good idea. Lets calculate with a 500chf monthly food budget (very ambitious), 6000chf p.A

56416chf. So far we have calculated just very basic living expenses and the 40% savings rate is already in danger. :slight_smile:

Let me know what you think. For further calculation I will add my own personal expenses to the calculation. When looking at the big expense block above these are actually not that relevant anymore.

Internet: 780chf p.A.
Smartphone: 420chf p.A + 150chf p.A for a medium class smartphone every 3 years
Electricity: 400chf p.A (also every dependent on your living situation)
Garbage disposal: 300chf p.A

If you have a dog:
Dog food: 700chf p.A

Fitness: 1000chf p.A

etc.


#2

Go biking, hiking, swimming, skiing. How dumb is spending 1000 CHF on fitness when living in Switzerland? Sorry, thats my inner @hedgehog shining through.

Dog? Don’t even get me started here, but I’m generally contra keeping house animals.

Get a cheaper appartment. 2500 CHF is far from Swiss median price, unless you are talking metro Zug, Zurich, Geneva, Lausanne.

GA? Car can be cheaper. My long term average all-in car ownership cost is <3000 CHF per year or <0.2 CHF per kilometer driven at 15000km’s a year.

Otherwise don’t get stuck on savings ratio and don’t sacrifice more than you can without causing you misery.


#3

It’s true that a good question (and everybody has a different opinion on the matter) is if the saving rate is pre or post taxes (some arguing that after FIRE those taxes will be much lower).

However how do you define your difference between gross and taxable income? the difference between 100k “taxable” and 150k “gross” looks a little bit exagerated to me. In Zürich, for a married couple with one kid earning 150k gross, you get 123’672 CHF post-taxes and social contributions.
(source)

For the reamining, i can add my humble experience, maybe others can share how they do it.

This might indeed be the medium rent, but it is too much (at least for me). In my example, family of three living in Zürich, we pay 1500 CHF (including nebenkosten) for 65 square meters (2.5 rooms). That makes 18k per year.

We do not have a car, but i have the SBB bonus pass thanks to my work, which is around 650 CHF per year and which allows me to travel in the whole canton with public transportation. My wife uses sometimes 24h passes when we need to travel together. And if we ever want to travel outside, we rent a car for the weekend. (happens around once or twice per year). So i would say we are around 1-1.1k for basic transportation per year.

2 people Assura with 2500 franchise is 6300chf p.A. (might be cheaper in some places, more expensive in others)

Indeed, for Assura (2 adults and one child) we pay around 7’800 per year.
Same, 500 CHF for monthly food is realistic (lidl rocks).

Internet is 40 per month (480 per year) with Sunrise ADSL
For you phone, take a prepaid card and use Wifi as much as possible (a 20CHF refill usually lasts around 3 months for me).
For electricity i have around the same amount (70 CHF every two months, around 420 CHF per year).

That makes a grand total of 32’380 CHF (not taking taxes into account).
For a couple earning 150k in Zurich and having 123’672 CHF post taxes, this makes:

  • a 73% saving rate (not taking taxes and AHV into account)
  • a 61% saving rate (taking taxes and AHV into account, so everything is compared to the 150k gross)

EDIT: As you can see, the biggest expense by far is housing. Focus on slashing this one, because if you start at a 2500 CHF rent, it makes everything more difficult.


#4

This is a calculation I did for an urban area. ZH GE and BE are not that different all in all. One has higher taxes another one higher rent. Even smaller urban areas like LU are not cheaper when it comes to basic living expenses

A car in one of these areas will always be way more expensive than 3000 p.a if you factor in parking etc


#5

An 80% savings rate when including taxes is of course impossible. But it’s a very difficult question of what to count as income and what to count as cost. Salary is one source of income, but you can also run a business or rent out a flat etc. Then what about 1st and 2nd pillar?

As a quasi-freelancer, I will bill the customer with an invoice, say 10’000 CHF net. With VAT that’s 10’770. Then I need to pay myself a salary. For this I need to pay the employer and employees social contribution, employers and employees 2nd pillar contribution, employees income tax, but then there are Spesen, which do not have to be taxed. It’s all crazily complex.

And actually, it is completely irrelevant what your current expenses are! The only thing that matters are your current savings (S) and your future expenses after FIRE (F). Then, your savings rate would be defined as R = S / (S+F). So if you’re saving 6’000 now, and you plan to spend 2’000 once retired, then I’d say your savings rate is 75%.

I really like this calculator. Note how it completely ignores your current expenses, income or savings rate.


#6

I think the Problem is US based calculators do not account for individual expenses globally. Things like Eigenmietwert, wealth tax as well as different housing and transportation needs will drag on your retirement portfolio as well.
Of course having to live in a big urban area for your job is the biggest expense but incomes outside of those areas are difficult to achieve. Unless of course you are an FI blogger :slight_smile:


#7

Yup that is how it should be done. Some people replace the savings by “income * saving rate” but that is the same. If you are interested by the calculation behind, I took some time to do the maths here.


#8

No, I think the point is really that your current expenses do not matter. They only matter as an approximation of your future expenses. But let’s say you get a top level job in NY or SF. There you need to rent an expensive flat, spend lots of money for good looking suits and maybe also drive a good car, to keep the appearances. And of course your taxes will go through the roof. These are all work-related expenses. But your goal is to actually live in a cabin in the woods and walk around in sweatpants. So all that matters is how much you can save now, and how much to you expect to spend once retired.

The current savings rate is in my opinion very dependent on invidual situation and not easily comparable, especially between two countries.


#9

Here is my monthly simple budget, tax excluded. I don’t have a GA or a gym subscription.
The fact that I can split a most of the big expenses with my SO is great.

Loyer 1100
Health insurance 255
GA + tram 100
Food 500
Fun/vacations 300
Clothing 50
Electricity 30
Phone + internet 80
Netflix + TV 30
Other insurance 10
Total 2455
Total/y 29460

You can probably add a good 1300-1500 for the taxes each month so about 45’000CHF a year. I think this need to be counted right? Or you guys always count your salaries as net.


#10

Most of this doesn’t sound very frugal to me. You could move somewhere else (low tax cantons ZG or SZ) to lower your taxes and also lower your rent in the process. I’m right now in the process in moving to the lowest tax Gemeinde there is under my circumstance. I’m a single living alone and have a gross income of almost 140k and my monthly budget will be as follows:
Rent: CHF 1150 (2.5 room flat in SZ)
Living Expenses: CHF 1200-1400
Holidays: CHF 500
Taxes: CHF 1000
So total of 3850-4050 including taxes. Rest goes towards 3a and savings.

Health insurance and ZVV I pay from my 13th salary. I should than be able to save around 60-65k per year including 3a but without Pensionskasse.

Of course taking it this far (moving etc.) is not for everyone. But than you will just have to accept that FIRE will take you longer.


#11

So you must have gotten lucky with rent then?

Because apartments in Zug can go for 3000+ because of the low tax rate. Especially Baar where I used to live they had apartments on a noisy road for 3500 … what a deal.


#12

It wasn’t pure luck I was looking for a cheap flat in the Gemeinde Freienbach for over a year. Whenever something cheap popped up I had a look at it and applied. Also I had to compromise a little bit. I won’t have my own wash-tower anymore and the flat is only 45m2 (but with a balcony), little older house but renovated in 2008 and 10min walk to train station.

So it’s an obvious downgrade compared to my current newly build very modern 62m2 2.5 Room flat in Zurich Kreis 5 for 1.8k, which is already below market price. But overall also a large saving (rent, tax, health insurance, electricity) - which is worth it to me.

When I was searching for a flat I had a look at many a bit older 2.5 - 4.5 room flates for ~1.2k. Always a lot of interest and usually for the big ones you don’t even need to apply for if you are single, as families will get preference. A friend of mine also had a 3.5 room apartment for ~1.5k in Baar, also a little older but nice.

But you will usually not see those flats if you just go on Homegate/Immoscout and hit the search button. Those flats go fast, so persistence is required. The ads are somtimes only online for a few minutes because they get overrun. Having a large social network can also help (you might find someone that you can take over a cheap flat from) but this wasn’t the case for me either.


#13

So I presume you work in Zurich and live in Pfäffikon? 30 minutes one way in a train to HB, a train only once every 30 minutes. Then in Pfäffikon it’s terribly ugly and there is nothing to do (OK Casino and Alpamare :stuck_out_tongue: )

Not only because of low tax. Also because in Zug there is actually some life and something to do, and it looks nice, and there are jobs in Zug! Pfäffikon is just a place where you live and then waste 1-2 hours per day for commuting. You easily find cheap flats in Pfäffikon. But should you get one? I have the possibility to work and earn as much as I want, so I will make more money by working more than by commuting from Pfäffikon every day.


#14

I lived there before, so I know where I’m going. I grew up nearby and most of my family lives around there and also some friends. And my commute within Zurich will be 30min, so it’s already 1h commute. So this only adds a few extra minutes.

And of course if you live in a city like Zurich or Zug there is always a lot more to do than in Freienbach or Baar. If paying the premium for this is worth it to you - fine. After living in Zurich for several years I know that it’s not worth it to me. It’s not just taxes that are more expensive, even just health insurance is +1k/year.

And if you have a normal employment with fixed salary you cannot count a commute as work time.


#15

To be fair, there is only “some” life in Zug. Its not like a buzzing city :wink:

It actually puzzles me that most of the restaurants and shops are so traditionally swiss still even with all the expats.


#16

The way I see it, you have two alternatives:

  1. Find a flat right next to where you work, go to work on foot. Pay extra in rent and taxes.
  2. Get a flat in a cheap canton and commute.

Then the money saved is like a salary and the commute time is like work time. If you need 45 minutes to get to work from Freienbach, that’s 30 extra hours of “work” per month. The question is how much will you save. For example, if you save 1’000 on rent and 500 on taxes, then for each hour of your “extra work”, you make 50 CHF.

In the end it’s just a matter of your personal preference.

Sure, I get it. But I think Zug is mostly so expensive because it combines low tax with job opportunities. People will not go live in some remote village, just to pay more taxes and have a longer commute. Plus you can lead a comfortable city life in Zug, yes it’s not as rich in restaurants and parks as Zurich, but still, it’s a nice place.


#17

Sure. But also commuting is probably not as “draining” as working. Or in some circumstances even more :wink: But I have a pretty flexible work schedule so I will be commuting off peak.

In an ideal scenario one would be working while commuting :slight_smile: Maybe a side gig? :sunglasses:


#18

Imagine you would live just right next to your work in Zurich and you would work your 40 hours. Then on saturday, you would get paid 400 CHF for sitting 8 hours on a train going back and forth between HB and Freienbach. Would you like to spend your every Saturday like this? Because that’s what you opted for.

Yes, you have some jobs where you can work from the train, but then you would probably need a 1st class GA and a seat at the table, and a good internet connection. Eventually, it’s pretty exhausting. I think working in train is a joke and the performance is nowhere near a desk with full size keyboard and 2 full HD monitors.


#19

Sitting in a train for long time which is really draining I see as something different than every day for a few minutes where you can use the time for some tasks like writing e-mails or making phone calls.

But taking your analogy anyway: Compared to my current living situation this would be more like 5h in tram without extra pay or 8h train with 400 extra pay. And good luck finding a somewhat silent place to live where I work…(near HB) so some degree of commuting will usually be necessary.

Also I sometimes work from home, without going into the office. But I agree that commuting is always a trade off. But for me the extra “paid free time” which I can use to do what I want just in the train and not at home is easily worth it to me. For you apparently not.


#20

Well, I’m moving now to 4.5 rooms apartment in Baar, ZG and I will pay 2k for rent (including parking) and practically nothing in taxes because family benefits is bigger than my income tax.