The year-long wait is over. The puny holiday bonus may be a letdown but guess what...
Here comes the 13th month pay!
As we all know, this is not exactly a bonus. The 13th month pay was mandated by Presidential Decree No. 851, otherwise known as The 13th Month Pay Law of December 1975. All employees of covered employers are entitled to this benefit provided that they have worked at least one month during the year.
Before you get excited about what to splurge on, take a step back and think of how you’ll make the most out of that once-a-year pay. Here are some tips:
1. Pay off debts
Debts, especially short term ones, should be prioritized when your finances gets a breather. Short term debts are money that you borrowed with the intent to pay back within a year or so. Credit cards, personal/student loans, anything that matures with an interest soon, and any debt that is costing you more money should be prioritized. Unless your company is generous enough to give you mid-year and holiday bonuses on top of your 13th month pay, the only time to free yourself from these is December.
2. Invest a part of it
The inflation rate here in the Philippines is a staggering 3.34% per year on average for the last 5 years. By definition, inflation is the rate at which general prices of goods and services is rising. As a result, our purchasing power drops down. Given that most savings accounts have interest rates of only 0.5 to 1.50% per annum, you’re actually losing money due to inflation. Not to mention that earnings from interest are still taxable so you’re actually getting less!
To combat inflation, it is wise to spare at least 20% of your 13th month pay to fund an investment. Depending on your age, you can get a life insurance with an investment policy for as low as P2,500 - P4,000.
If you’re willing to go higher, go all in on investment products such as Mutual funds, where you can start with P5,000, and Unit Investment Trust Funds or UITFs, where you can start with P10,000 as initial investment. However, there are banks with UITF products that offers a much lower minimum; some as low as P1000. These investments propose a long term return, much higher than what you lose due to inflation.
Still, there are other ways of investing your instant money on. To know more about these kinds of investment, see our other article: What Makes Up a Strong Financial Foundation
3. Pay yourself
We have to reward ourselves for a job well done this year, right? Most of us will think about splurging most, if not all, of our 13th month pay on an expensive item or gadget, because we're the ones who deserve it the most after all! It’s all right to reward ourselves, but just imagine doing this every year.
Think about it. If you wanted to purchase a gadget badly, you should have saved up for it. Spending your 13th month on a new gadget is cool but it does not maximize your gain. Its value starts to depreciate once you get your hands on it. We suggest to put first the things you need and relentlessly cutback on the stuff that you don’t.
4. Share your blessings
The spirit of Christmas will never be complete without giving. Share whatever is left after spending most of your bonus on the essentials (such as the ones above). For those dearest to you, the best gift would be to start an investment for them. A LIFE INSURANCE is one such investment to give to a loved one. This will help them a lot in the future and even help them start a retirement fund. A CAR INSURANCE is another investment in the form of protection in case of mishaps on the road.
ConclusionWhile it’s completely fine to splurge with your 13th month pay, it is very important to keep a close eye on every peso spent by prioritizing.
Think we missed anything? Post a comment down below!