Expenses & Savings Rate

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Let’s talk about your savings rate and reducing your expenses. First, we will cover why I think of all the three levers, expenses is the most important one. And then we will go deeper into how to track and reduce expenses as well as defining what the “correct” level of expenses is. Excited? I am for sure.

Remember Bad Ass Mike and Nice Guy Andy? Remember that in the first eight years of working, Bad Ass Mike earned over double as much as Nice Guy Andy? Remember that Andy would have survived longer in the case of long unemployment (11 years vs 0.5 years)? Remember why this was the case?

The answer is: Nice Guy Andy had unbelievably low expenses. 

This had the double effect of Andy being able to build up a much a higher savings bucket as well as being able to live on less and therefore “stretch” his money longer during times of need. Because of this double effect, I believe that focusing on expenses is the most effective of the three levers of financial independence. 

The Key Element: Your Savings Rate

Let me show you what I mean through some very simplified mathematical calculations. Let’s assume that you are saving 10% of your income every year (like most good parents tell their children to do) and you are living off the remaining 90%. 

So if you had an income of CHF 100’000 per year, you would be saving CHF 10’000 and spending CHF 90’000.

Also, you are in the fortunate situation of living in a country where there are no income taxes (for example the United Arab Emirates). In this case, how many years will it take you to save up one full year of living expenses?

Exactly nine years (90% divided by 10% or CHF 90’000 divided by CHF 10’000 = 9).

That means, if you start working at 25 and retire at 65 (i.e. a working career of 40 years), then you will have saved 4.4 years of living expenses. Not bad and to be fair, this is quite a good safety cushion. 

However, is it enough to retire early and be financially independent? Well except if you maybe move to Nepal and become a celibate monk with no material needs, this is nowhere near the level that you can be at. In short, it means that you could retire somewhere around 62, instead of 65 in case you want to. 

This is still better than for most people, however, it does not protect you from a scenario where you lose your job at 55 and are not able to find a new source of income.

Let’s look at the same scenario for saving 25% and 50% of your income.

With 25%, it will take you 3 years (75% divided by 25%) to have save one year of living expenses which is a dramatic reduction from the 9 years with a savings rate of 10%. Assuming a 40-year working career, you would have saved roughly 13 years’ worth of living expenses. In this scenario, you could have most probably retired somewhere around 55.

At a 50% savings rate, the figures start going crazy. It would take you exactly 1 year to save up one year of living expenses (50% divided by 50%). 1 year! 

That means you would have saved up 40 years of living expenses by the time you would have retired. And this is without even having invested the money. You could most probably have retired somewhere around 45-50.

Now I am sure you are laughing and shaking your head. You must be saying: “I will never be able to save 50% of my salary, because I do not want to live under a bridge.” Or “These examples are completely stupid, because they do not include adjustments for salary increases, living together with 1 to 3 other people in case of a family, and other things.” 

And yes, you are completely right. The examples above are for illustrative purposes. 

What is important to understand is that the key to this discussion is the savings rate. All the examples above were not in absolute figures (CHF), but in relative portions (%). This means that the general concept is applicable at any stage of life.

The higher your savings rate, the more money you can save as compared to your living expenses, which makes you more financially resilient in times of crises.

A 10% savings rate (the average in Switzerland since 1990 by the way) is great and will always give you just enough of a cushion to give you peace of mind. A 25-30% savings rate will give you more flexibility to take on risks or retire early at around 55. However, a savings rate around 40-50% exponentially increases your chances of being financially independent at a young age and determine your life free from financial pressure.

In essence, saving money can only help you. If you have a super low savings rate, for example 1% and you manage to increase it to 3%, this means that you are tripling your savings which might be the difference between sleeping calm at night or not. When you increase your savings rate from 25% to 50%, your time to financial independence decreases dramatically. 

Generating savings can only help you, no matter which level you are at. This applies for young and elderly people, as well as rich and poor individuals (ok, maybe if you are Bill Gates rich, it does not matter whether you save money or not).

There are quite a couple of people and families who have a consistent negative savings rate (meaning they spend more than they actually earn) or who have a large amount of debt. In these situations, improving your savings rate is crucial. First, your savings rate must be positive and then you should consistently work on increasing it to a level where you can throw all your savings at your debt and reduce that financial and emotional burden. 

Dave Ramsey has made a name for himself in helping people and families in these situations get their financial life together through a seven-step program which has had a huge positive impact on the lives of many Americans.

On the other extreme, there is a movement In the US called FIRE (Financial Independence Retire Early), where people are aiming at retiring at ages as early as 35 to 40. They live extremely frugally and save somewhere around 75-80% of their income. 

The “Jesus” of the community and the first guy to spark this movement, is someone called Mr. Money Mustache (MMM in short). He has one of the most successful blogs in the world and retired at an age of 30 with a wife and two children. I recommend reading some of his articles to give you a taste of the ultra-hardcore group of people in the financial independence movement, also sometimes referred to as Mustachianism. 

One of my favorite articles by Mr Money Mustache is called “From Middle-Class to Kickass” and I would highly recommend reading it. Just take his style with a grain of salt as he is very much “in your face”.

The Best Savings Rate Level

“But Mr C&M, you cannot expect me to save 50%, not to mention 75%, in an expensive country such as Switzerland?” 

Well, I do not believe that it makes sense to define a savings level that works for everyone and in every situation. Personally, I aim to save more than 50% of my salary, with a non-negotiable minimum of at least 30%, no matter my current or future personal and professional situation. This is the level I would generally advocate for someone to aim for.

In general, the ideology which I would highly encourage you to follow is the following:

Track your expenses and cut out every expense which does not give you value.

Both parts are significant. Without tracking your expenses, you cannot know exactly what you are spending your money on and you will have no clue of how to effectively reduce your expenses. At the same time having a high savings rate is great, but if you make your life miserable by cutting out expenses which give you a lot of value, then you are clearly overshooting. 

The process of finding your perfect savings rate is a continual process and requires a lot of adjustment. On one of my podcasts I heard the story of a guy who found the financial independence movement and started to reduce his expenses. Before following this path, he had expenses of USD 110’000 per year. The first year he reduced his expenses to USD 80’000, then USD 60’000 in the second year and USD 40’000 in the third year. After reaching USD 25’000 in year 4, he increased his spending back to USD 40’000 in year 5. 

At USD 40’000 he was just as happy as with a spending of USD 110’000, because he was focusing on what mattered to him the most. He was getting value out of every dollar spent. Below USD 40’000 he was starting to forego activities which gave him value and therefore this decreased his quality of life, despite allowing him to save more.

I hope this point helps to illustrate that cutting out expenses will not make your life better or happier just like that. The key is to focus on expenses that do not matter to you and give you no real value. Do you really need that extra bag? Is it really necessary to buy a car when you can bike to work? 

Balancing The Chocolate and Money Aspects of Life

And this is a key point: In no way am I advocating having a life full of deprivation just so that you can reach your financial goals. Whatever you spend or save must be right for you today!

However, there are so many activities and expenses that we make which do not give us value. If you focus only on what gives you joy and what gives you value, will help you save both money and increase your quality of life.

For me it is all about balancing the chocolate and money moments of life. I love chocolate! Give me a piece and I will just not be able to stop eating it (so very Swiss of me, I know).

And guess what? It is unhealthy for me both from a waistline and a wallet point of view.

However, I will not stop eating chocolate. It gives me joy and I feel happy. However, what I do is I limit my chocolate consumption to a specific level and only to times where it acts as a reward for having achieved something.

This way I become more productive (because I really want that piece of chocolate) and it helps me save money, because I do not binge on it.

And this is the core of the message:

Do not deprive yourself of things that give you value, just to save more. Save on expenses which do not give you value and thereby spend more time on what matters.

How To Track and Reduce Expenses

So how do you get started? The answer is simple: Track your expenses.

There is not one correct way for doing so. Some people use apps to track their expenses on-the-go, others record them once per week / month. Personally, I sit down at the end of each month and go through the expenses of my debit and credit cards in excel. This works well for me, because I seldom use cash.

As for the expense categories to track, these will be different from person to person depending on their individual lifestyle. An auditor flying around the world whose daily expenses are covered by the company will have different spend categories than a normal working person at home with two children and a spouse. You can find many different layouts online with a little search.

My suggestion for the major categories would be the following:

  • Taxes
  • Medical costs incl. insurances
  • Other insurances
  • Transport
  • Housing
  • Groceries
  • Restaurants
  • Holidays
  • Clothing / Fashion
  • Cosmetics
  • Subscriptions
  • Hobbies

It is important to understand that data of one month will not be sufficient to analyze your expenses fully as you will have one-time costs which might distort the picture. In my opinion you need at least 90 days, preferably one full year, to correctly understand where you are spending money. Holidays for example will only be due in certain months and taxes are generally paid once per year.

Tracking expenses is key.

Without having an accurate knowledge of where your money goes, you will not be able to optimize. Many people who start tracking their expenses are surprised by where they actually spend money vs where they thought that they spend money.

After having a first overview of your expenses, the next step is to optimize them. This means that you want to reduce expenses in the categories with a high spending level . Again, there is not one correct way for doing so. Below are three ways of looking at expenses and how you might tackle the task of increasing your savings rate. 

Many people are firm believers that you need to create a monthly budget, where you define line by line how much you want to spend. At the end of the month you then analyze the differences and take action based on these differences. 

Personally, I do not do a budget anymore. While I think it has its merits, my costs shift so strongly from one month to another that it is impossible to make an accurate, meaningful budget.

Another way of looking at expenses is categorizing the expenses into two categories: essentials and discretionary spending. The discretionary spending can also be split further into high, medium and low importance. The idea is then to aggressively reduce the discretionary spending to a low level. 

I have refrained from this approach, because I believe strongly that there is improvement potential in the essentials category as well (e.g. food, who really needs to eat 10 chocolate bunnies during Easter?). Also, there are many items in discretionary spending which give me a lot of value (for example my tennis membership).

The third approach is to tackle one category at a time. For example, you could aim to improve one category per week / month and look for improvement strategies on this specific line item. You start with the large buckets such as housing, transport and food, and then move on the smaller spend categories such as restaurants and hobbies. Of course, nothing stops you from tackling multiple categories at the same time. This is my preferred approach and the one that I would recommend.

Most probably I could write 10 pages per category and how to reduce expenses in each one of them. The important part is that you understand the concept: track you expenses and cut out whatever does not give you value. If after reading all these letters, the only thing that you take away is that you need to track your expenses, then I will already be overjoyed.

Nevertheless, here are 10 simple strategies to help you increase your savings rate:

  • Track Your Expenses – it is that important. The number one basic tool to reduce expenses. I cannot stop mentioning it.
  • Avoid Lifestyle Inflation – This point is key and very easy to implement. Normally when people get a promotion and earn more money, they tend to start spending more (remember Bad Ass Mike?). Instead of the Reebok shoes, they now buy the Nike shoes. Instead of going on holidays to Croatia, they now go to the Maldives. 

    Do not let this lifestyle inflation happen to you. My suggestion: whenever you get a salary raise, allow yourself to increase your lifestyle by 10% of that raise. The other 90% go into your savings account. And voilà, every time you get a raise, you can increase your lifestyle while at the same time increasing your savings rate. You get the best of both worlds.
  • 72-hour rule – Nowadays all the stores are trying to incite us to do so called “impulse-buys”. The 72-hour rule only allows you to buy something when you have it on a buying / grocery list. If there is something you want to buy which is not on the list, then you put it on the 72-hour list. 

    If after 72 hours you still want to buy the item, then you get the green light to make the purchase. The same goes for any kind of online shopping or city shopping (aka no extra ice creams without waiting 72 hours at least). You will be surprised at the number of items you suddenly do not buy.
  • Uber Frugal Month – In order to really understand what you value, perform an uber frugal month. The goal is to reach a savings rate of 80%+ for one month. Really cut your expenses to the bare bone. 

    You will definitely overreach and have a tough time pulling it off. But at the same time, this will help you understand what you really miss and what you do not miss. You only really know what you value, when you do not have it anymore.
  • Use Cash – Research has shown that you spend way less when you pay everything in cash rather than using card. I guess we feel the pain of losing money much more when we hand over actual money rather than just swiping a plastic card.
  • Use Discounts and Coupons – There are a ton of websites and tools to make use of coupons and discounts. When planning groceries, you can focus your meals on items that are on sale. You can also check out special offer websites like groupon.de.
  • Review your subscriptions – These guys make up small amounts, but in total can add up to a hefty amount. Do you have a Netflix, Amazon Prime and Disney+ account? Do you really need all three? Can you share with someone in the family? Only keep the ones which really add value and you regularly use. And no, your brother will not pay for you.
  • Check free activities in your region – A little online research goes a long way in finding great experiences for free. You would be surprised at the amount of free activities happening.
  • Hire an Accountability Buddy – Once you have set your target on a specific line item which you think will be really hard to reduce or a savings target which will be really hard to reach, tell someone and have them track your progress. Having an “external auditor” control your achievement gives you an additional push.
  • Stay Healthy – This will help you cut back on your medical costs and at the same time keep you physically in shape. Hopefully it will also have a positive impact on your mind (i.e. no mantra of “I hate sports, I hate sports, I hate sports”). For example, you could bike to work every day and have the added benefit of reducing your transportation costs at the same time.

There is a blog called http://www.frugalwoods.comand the corresponding book “Meet the Frugalwoods” who are specialists at cutting the expenses to the absolute minimum. Always worth a read if you are trying to reduce some specific expenses. 

In general, the two communities of Frugalism and Minimalism are good go-to points when you need inspiration of how to cut costs.


In summary, I hope you now understand the importance of having a high savings rate in achieving financial independence and how you can use this lever by a) tracking your expenses and then b) cutting out the expenses which do not give you any added value.

The path to financial independence is very different from person to person. Not everyone will have the same savings rate and not everyone gets the same value out of the same things. Do not judge someone for spending money on activities or objects which you do not get value from, because they might get a lot of value from it. The key is to focus on your expenses and what you get value out of. Not others.

I want to stress this point one more time because it is absolutely key: In no way am I advocating a life of deprivation, just to save more money. However, I am all about balancing the chocolate aspects and the money aspects of life.

Focus on what makes you happy and gives you value. Cut out everything else and you will both lead a happier life and reach financial independence faster.

With this letter, we have covered the first of the three levers of financial independence. I hope the concepts described here are clear and actionable. The next letter will focus on the topic of investing, both the underlying concepts and what simple strategies to implement.

Cutting expenses does not sound fun. I sincerely hope that this mindset of cutting out expenses which do not give you value, ultimately brings you more fun than before by focusing on the important things in life.


Mr C&M

Actionable Items

  • Create a template to track your expenses
  • Input your expenses of the previous 1 to 3 months
  • Compare your expenses against your estimate from letter 1 – An Intro To Financial Independence

Do you have any questions, concerns, feedback or constructive criticism? Let me know in the comments or send me an e-mail at info@chocolateandmoney.com. Anything is highly appreciated.

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