So that there is enough left over – what proportion of the salary may be accounted for by fixed costs??

In many countries, income is openly communicated, but Germans often prefer to keep a low profile. The motto "money is nothing to talk about" applies especially if the salary is high. Nevertheless, the annual income statistics and salary reports are always an exciting and much-discussed topic, whereby the average salary in the Federal Republic of Germany in particular is a generally accepted figure although this can of course lead to very strong deviations upwards and downwards.

The average salary

The average gross salary of German employees is referred to as the average annual salary, which has risen steadily over the past few years and in 2014 was around 41.000 euros. In reality, however, many employers do not reach this salary threshold for a long time, while others even earn significantly more. Real wages in Germany have risen because, on the one hand, there have been wage increases and, on the other, low inflation rose by 1.35 percent at the beginning of 2014.

It is important to distinguish between average salary and average income. Because while the average salary is made up of the total gross income, the average income is the pure net amount. A further distinction is made between the gross salary, the net salary and the final net salary. The following chart explains the differences:

Gross and net

1. The gross income is not only formed by the salary, but also includes pension payments or wage replacement benefits, as well as property income and state and private transfer payments. In addition, there are sales or. VAT, so accordingly the gross amount is generally higher than the net amount. Wage tax, church tax, solidarity tax, pension insurance, health insurance and unemployment insurance are deducted from the gross salary.

2. Net salary, in turn, represents the amount that is actually still available after deduction of taxes and social security contributions and can be spent or invested by the employee as desired.

3. 3. But also the net salary is usually influenced by some other values, among which are the so-called fixed costs. It includes amounts that are usually used constantly for a certain period of time and are used, for example, to finance the car, rent or weekly shopping. These are costs that can be determined by the person concerned according to his or her own feelings, but which are usually due anew each month. Only what is left over after deducting fixed costs is referred to as the net amount and represents the amount that can be used for discretionary purposes.

This is how today’s fixed costs are made up

Rent in particular has been getting steadily more expensive for several years now; according to Wirtschaftswoche, German households therefore spend an average of one-third of their income on housing. However, it is not so much the high cold rents, but rather the energy costs that are causing prices to rise. On the other hand, according to Axel Gedaschko, President of the Federal Association of German Housing and Real Estate Companies, it is also a fact that costs are rising because people are simply affording larger and larger apartments.

With regard to rent, this should never be more than one-third of net income, according to a general recommendation by financial experts. If it is higher, then a move is possibly worthwhile, because in such a case the person concerned lives beyond his means. Who would like to save itself this portion in the future even completely, for which probably the owner-occupied dwelling is an interesting alternative should the required budget be available, but still some factors are important in the search for housing, in order to keep the fixed costs low. Size, cut or successful financing also contribute their part to future fixed costs, whether in the form of monthly financing or higher electricity and heating costs thanks to large or high rooms.

In relation to the complete fixed costs, a guideline value of 50 percent of the net salary is recommended, which should not be exceeded. This means that rent and all other fixed costs should ideally be For example, an Internet and telephone flat rate, liability insurance or occupational disability insurance ideally make up less than half of the net income. If possible it should be even better only 30-40 percent. If this calculation does not work out and costs do exceed 50 percent, some costs should be eliminated as a matter of urgency.

Important factors that go into the fixed costs

1. Food
About 15 percent of income should be set aside for food, but this category also includes stimulants such as tobacco and alcohol. As is so often the case, however, individual needs are the decisive factor here as well So if you are passionate about eating out, you will probably rarely make large purchases, but you will still have to pay an above-average amount for them. And also families usually spend much more money on food, with costs rising together with the age of the child.

2. Clothing
Germans consider this point to be less important, so consumers should be able to get by with a comparatively low 5 percent of their monthly budget. However, there are always exceptions, for example, when the winter jacket is broken in the middle of December or a serious costume for the next job interview is needed.

3. Health
The cost of medication, prescriptions and care products should be on average about 4 percent of the monthly budget. However, experience shows that this value increases with the age on.

4. Insurance
Above all, liability insurance is indispensable in order to be covered in the event of damage or loss. It usually costs around 50 euros a year and is therefore a manageable expense that does not have a significant impact on the monthly bill. However, this point becomes noticeable when other insurances are added, including legal expenses insurance and the like. Here it is important to weigh which policies are really necessary and which are rather superfluous.

5. Retirement savings
Especially nowadays, when there is always talk of so-called old-age poverty, old-age provision is a very important aspect. Since the statutory pension has not been considered sufficient for a long time, additional safeguards are recommended in any case. According to the Bildzeitung, the following rule of thumb is recommended and was published by the German Institute for Economics:

  • Young professionals: 4-6
  • 30-year-olds: 5-8
  • üover 40-year-olds: 7-10.

6. Leisure and entertainment
Often as much money as possible is saved, in order to drive from it into the vacation or to notice other leisure offers. Germans therefore spend around 11 percent of their income on visits to the cinema and zoo, or on many other cultural activities. Especially for a small family, this can quickly become expensive If you want to keep your budget together, you will usually find some savings potential in this area.

7. Car and traffic
For many people, owning a car is not only an investment, but also a status symbol and is therefore in demand. Those who want to buy their own car should, however, consider that it should not be more expensive than six net salaries, according to financial advisors. So if you want to spend 30.000 euros, he or she could buy a car for around 15.000 euros without getting into financial difficulties.

8. Saving and setting aside
At the end of the month, there should be enough money left over to save some money for yourself. Especially in the case of sudden financial setbacks, a few reserves are worth a lot. A good rate is about 10 percent of the remaining income, so that still enough money remains to spend the month without cuts.
However, it is important to make sure that the money is invested wisely so that you can really get something out of your savings. The reserves should be considered with the net yield, because this depends on tax dues and the inflation and shows the real capital increase. Those who invest in securities, for example, must take into account different conditions than those for a call money account.The following entry explains the taxation of the net yield as well as the determination of its extent in the case of third-party leasing and other investments.
Also important: the money saved in this way should not be used for the next vacation or similar, but should really be put aside for possible emergencies.
In the case of possible debts, this part of the salary should also be even larger, so it is best to put aside another 10 percent. If regular interest is also added, setting aside money will be doubly worthwhile.

Fixed costs are subject to constant fluctuations and, above all, unforeseen events such as accidents, redundancies, moves and the replacement or repair of household items should always be kept in mind when considering monthly income and expenditure. Especially in the area of rent, food, gas and electricity costs can rise sharply and receive a higher weight in the distribution. In addition, retirement provision is becoming more and more important as society grows older. Good reserves help out with increased fixed costs in later life.

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