With 2021 household savings representing nearly 36% percent of its national wealth and almost 19% of average household income, Switzerland is one of the world’s 20 most frugal nations. As such, it hardly needs any tips on saving.

However, if you, as a Swiss saver, are asked by citizens of less-thrifty nations for guidance on how to emulate your diligence, here are five rules you can teach to set them on the right path.

1. Set goals

The first rule is to establish lifetime spending goals you want to achieve with dates for each one. For example, a new car, a holiday, a home, private education for your children, or a kid’s wedding. Very likely, none of these will be more than ten years away, while the holiday and car could be just one year out.

Start with the spending goals that are coming up first, then continue the list with the spending goal that is furthest off in the future (i.e., your retirement). This will help you afford upcoming expenses first while saving for future expenses at the same time.

2. Calculate costs

The second rule is to calculate the estimated costs of each goal at current prices to be realistic. For example, it is estimated that 14 years of private education, including university, costs at least CHF 630'000 per child in fees alone.

Meanwhile, to provide a pension equal to 50% of a pre-retirement salary of CHF 70'000, you need a pension “pot” of about CHF 800'000.

That may seem daunting, but saving CHF 800 per month from age 30, assuming a modest annual return of 5% will provide over CHF 800'000 by age 65.

3. Adopt the 50-30-20 rule

The classic savings rule of 50-30-20 is our third rule for saving. With the 50-30-20 rule, savers should spend 50% of their income on essentials such as food, shelter, and clothing, 30% on discretionary items like holidays and entertainment, and save the remaining 20% of their monthly income.

To do this, don’t simply say you’ll “try to put aside” some funds every month. Instead, allocate a fixed 20% of your net earnings into an investment plan on a monthly basis. By doing so, you free yourself from having to constantly think about it. Moreover, once you start, abandoning the plan will require considerable effort, which may be enough to help you stick to it.

The clever part of this discipline is the concept of dollar cost averaging. With each monthly contribution, you acquire additional investment assets at current prices. While some assets may be bought at market peaks, just as many will be acquired near market troughs. Over time, you will purchase assets at reasonable prices, which can in turn lead to reasonable returns. The best part is you don’t need to worry about making tricky decisions regarding market timing, as the entire process is entirely automated.

4. Avoid debt

The fourth rule is to avoid debt. Savers should not have excessive debts unless they're borrowing to purchase “stores of value” such as real estate that retain their value and appreciate over time. Remember, you should never borrow to buy depreciating assets such as cars, but instead, pay cash or lease them. And pay credit card bills in full every month to avoid the accumulation of credit card debt and interest.

5. Avoid frivolous spending

The last rule is to avoid buying unnecessary items. Many investment advisers forecast lower future returns from most assets due to the gradual reduction in economic support by central banks (quantitative easing). This situation could lead to higher inflation, higher interest rates, and slower economic growth than has been the norm over the past 50 years or so.

Historical and projected returns for stocks, bonds, and cash equivalents
Source: Charles Schwab Investment Advisory

Consequently, the 50-30-20 rule should probably be changed to 50-20-30. That means reducing your discretionary spending and saving even more.

Saving money saves the world

You might wonder whether such discipline and financial prudence is a selfish pursuit, especially considering the current state of our planet: a rapidly changing climate, dwindling water supply, and an influx of refugees at our borders. Perhaps it would be better to use our resources to aid those in need rather than only focus on our financial security.

In fact, the truth is quite the opposite. Savers, far from being perceived as frugal and unsociable penny-pinchers, are actually the key to driving economic growth and improving living standards.

This concept is demonstrated in the modified Harrod-Domar model of economic growth, a virtuous cycle that emphasizes the interdependence of saving, investment, and consumption.

The Harrod-Domar model of economic growth
Source: Economicshelp.org

Simply put, saving leads to investment, which in turn increases productivity and output capacity. As productivity and output capacity increase, workers become more valuable, which leads to higher wages and more consumption. This ultimately results in higher economic growth, as seen by the sustained economic improvement since the post-WWII economic boom of the 1950s.

As such, savers are not just securing their own financial future, but also contributing to the prosperity of society at large. By investing their money, they are fueling economic growth and promoting the well-being of future generations.

Share of the world population living in poverty
Source: Our World in Data

Conclusion

The message is clear. If we want a safe and stable future for ourselves and our children, then we must embrace the concept of saving. The world has all of the products and services we need to become expert savers. However, what is in short supply is the knowledge, foresight, and will to utilize them effectively.

While Moonshot cannot provide the former, we strive to impart unparalleled financial market insights and elucidate how a visionary outlook can aid in accomplishing your financial goals and accumulating wealth.

Remember, it all starts with a single step, and the only path forward is to seize the opportunity and systematically build your own wealth.

“Rome wasn't built in a day, but they were laying bricks every hour.” — John Heywood, eminent English Playwright

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