How should I allocate my money?
When it comes to allocating money, budgeting, and saving come first. Afterwards, paying off debt and having insurance are vitally important. When these three money topics are understood and adopted in your way of life, then investing becomes a very important topic. The goal of learning to invest is about saving wisely by investing seriously. It is all about your long-term financial future and avoiding your exposure to risk, including inflation.?
For budget allocations of income, there are some general rules. Here is an example based on a new young graduate living in Switzerland. These percentages are based on a monthly gross salary (without taxes).
Having enough cash to pay your bills is the purpose of allocating your income according to savings, taxes, needs, and wants. It might sound boring, but it is beneficial for everyone to have a budget. The first item in any budget should be the amount to be saved. Some call this “paying yourself first” before paying your bills. Saving for the future is a plan, not an afterthought. It is intentional and not what is left over. A bank account is an optimal place to save the money needed to pay current and future bills.?
Saving 10% of your salary allows you to build your “emergency fund” of 3-6 months of monthly income within 3-4 years. These percentages will vary based on where you live and your personal preferences, but this is the general rule of thumb.
After your emergency fund is built and set aside, only to be used for emergencies, you can and should start thinking about how to invest regularly. If you have an income of 5,000 CHF, you can save 500 CHF monthly, and that means investing 6,000 CHF per year.?
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The bottom line, saving is important, and allocating your money to different accounts allows for a better overview of where you stand at any moment.?
If you want to learn more about how to invest and allocate your money, join yeekatee and learn from your peers.
Written by?Therese Faessler, Founder of?invested.ch?and?SFTA?Head of Financial Literacy