Switzerland is an expensive place to make financial mistakes. Still the relatively high incomes, and high levels of disposable income in particular, lead to many residents having a somewhat careless attitude towards money. Over the long term, the cost of poorly-informed financial decisions can cost tens of thousands of francs. Here, moneyland.ch lists 10 easy ways to waste a lot of money in Switzerland.
1. Choosing the wrong health insurance.
In Switzerland, health insurance is one of those costs you simply cannot get around. However, you can end up paying much higher premiums than necessary by choosing the wrong policy, insurance model and deductible.
Getting compulsory health insurance from an expensive insurance provider and settling for a standard insurance policy when a low-cost family doctor, telmed or HMO model would work just fine for you is equivalent to flushing money (more than 2000 francs per year) down the toilet. An obligatory health insurance premium comparison can help you avoid this waste. Likewise, getting supplementary insurance which does not cover your actual healthcare needs is another easy way to waste money.
2. Leasing instead of buying.
Leasing everything from vehicles to furniture to televisions is a popular practice in Switzerland. However, leasing rarely makes financial sense, especially where getting a car is concerned. Aside from the high cost of lease payments, drivers of leased cars have to fulfil expensive lease obligations (like regular services at expensive garages) and are usually required to take out expensive fully-comprehensive car insurance. You do not benefit from income tax deductions (as you do when you get an auto loan) and in the end, you do not even own the leased car. Get more tips on auto leasing here.
3. Plugging in to actively managed funds.
At some point in life, many people feel the need to invest part of their savings, and in many cases their bank will point them towards actively-managed funds. Unfortunately, actively-managed funds are expensive because you are paying a professional asset manager to manage your portfolio. On average, costs are equal to 1.5% of invested assets, but active fund managers rarely manage to outperform general market rates.
This means the returns on the money you pour into these funds may be slim or non-existent. In the worst case, you could end up spending more on fees than you actually earn off your investment. Passive funds (like ETFs based on Swiss stock rates) have much lower average costs of just 0.4% and generally perform just as well. Choosing the wrong investment vehicle is an easy way to lose a lot of money fast. Read more about active vs. passive funds here.
4. Getting the wrong mobile phone service.
Smartphones seem to have become a permanent extension of most people’s bodies, but some people pay a lot more for the prosthesis than others. Phone contracts and prepaid services are becoming cheaper and offering more service for your money all the time, so avoid tying yourself into a long-term contract (more than 12 months) because a better deal is likely to come along long before your contract expires.
While many telco service providers offer free or cheap deals on expensive phones when you get a long-term contract, paying for a phone up front in cash rather than installments is almost always a cheaper option. If you rarely use your phone, getting a prepaid option will normally work out cheaper than tying yourself into a contract. Paying for an expensive contract which provides services you do not actually use is another good way to waste a lot of money.
5. Dabbling in the stock market.
The stock market is not a good place for dabblers. The basic rule of trading is “do it right or don’t do it at all”. Take time to study the costs, risks and inner workings of stock trading thoroughly before you invest real money. Compare the costs of different brokers (using the moneyland.ch broker comparison tool, for example). If you do not feel confident in your knowledge of trading, consider investing through passively managed funds like ETFs instead.
6. Buying a home when you aren’t financially prepared.
Taking out a mortgage and buying a home when you do not have the financial means to cover the often-high costs that come with being a homeowner is one of the surest ways to lose money fast. The rent or buy calculator from moneyland.ch can help you determine whether buying a home is a good financial move for you. Additionally, buying the wrong house can very quickly turn your pockets bare. Never rush into buying a home and do your due diligence. Check out this list of things to look out for when buying a home in Switzerland to help you avoid buying into an expensive bargain.
7. Picking the wrong car insurance.
Not having the right car insurance coverage can cost you dearly if you have an accident. If you have invested a lot in a vehicle, getting collision insurance or semi comprehensive insurance coverage could help you avoid spending a lot on car repairs or losing your investment if your car is written off. Likewise, getting comprehensive or even collision car insurance for a car that isn’t worth much is usually a bad financial move, and compulsory liability car insurance is probably all you need.
8. Paying unnecessary taxes.
While making sure you pay the taxes you owe is a legal requirement, many people spend more money on taxes than they need to because they don’t understand what expenses they can deduct from their taxable income. If you are not deducting income earned from stock dividend distributions, money you deposit into 3a retirement accounts, money you spend on health insurance premiums, money you donate to registered non-profit organizations and money spent on interest charges (for loans and mortgages) from your taxable income, then you are paying too much. Paying more taxes than you are legally required to is equivalent to donating money to your municipality, canton and the federal government.
9. Not paying your bills on time.
Merchants and service providers are legally allowed to charge 5% interest on bills which are not paid by the due date. If you pay your bills late, the cumulative penalty interest charges can add up to a lot of money. In the case of credit cards, the annual interest rate of up to 12% will apply if you do not make your credit card payment on time. If paying late is a bad habit of yours, setting up direct debits for recurring payments instead of getting billed is an easy way to avoid blowing money on penalty charges.
10. Keeping unused subscriptions.
Gym memberships, internet subscriptions, auto club memberships, phone contracts, paid credit cards, car-sharing service subscriptions, club memberships – the list goes on and on. Most Swiss residents hold several subscriptions and many of these subscriptions go unused for long periods of time. Go over every single subscription that has any kind of recurring cost attached to it and ask yourself whether or not you still use that subscription. Recurring expenses for services you do not regularly use – even when individual charges are insignificant – can add up to huge amounts of wasted money over the years.