13th Month Pay: How to Spend it Wisely
Wow! 13th-month pay. What a music to our ears!
December is here and we have a lot of things to be excited about.
We are now talking with friends and co-workers about year-end parties, family reunions, holiday vacations outside of the city, or even abroad, meet-up with old friends, and other exciting activities.
Most of all, we are greatly anticipating the 13th-month pay, a mandated benefit for anyone who has worked for more than a month.
Do we spend our 13th-month pay wisely? Is it reserved for funds to improve our finances or do we just spend it on new stuff just like most people?
Below are the wise ways to spend our 13th-month pay. Doing one or a few of them will greatly improve our financial situation especially in the coming year.
We can spend the whole amount or we can just set a certain percentage as this greatly depends on your personal preference.
1. Pay your debts
One of the best ways to spend your 13th-month pay is to pay your debts which can be personal, credit card, or bank loans.
Paying our personal loans from relatives, friends or co-workers should be a top priority.
During the time that we were in dire need of cash for whatever reason, they were there to help us. Therefore, it is just logical that since we already have the cash, we should repay them. If we owe someone money, we should pay them first instead of buying gadgets or new stuff.
Other than personal loans, we can also pay our credit card debt using our 13th-month pay. If we are just rolling our total monthly due from one month to another, we are wasting a lot of money on interest. We could use that money for more important things instead.
For example, you have a balance of Php 50,000 in your credit cards and you only pay the minimum amount due. At 3% interest, you are losing Php 1,500 every month.
By the way, that’s a conservative amount as most card companies charge around 3.25% or 3.5%. In that scenario, the interest from your cards can already be allotted for your emergency fund.
2. Use your 13th-month pay to build your emergency fund
Everyone needs an emergency fund. It is an amount that we normally deposit in a bank and reserve for unexpected financial situations or emergencies. It is a financial buffer and safety net so that in times that we need cash, it is easily accessible.
An emergency fund will ensure that we will not resort to borrowing from others or withdrawing our investments. To know more about this fund, you may check this post: What is an Emergency Fund and Why is it a Priority?
An emergency fund is equal to 3 months worth of expenses at the minimum. If we only allot a small percentage of our salary to building this fund, it will take several months. For example, after tracking your expenses, you realized that you spend 90% of your salary on necessary expenses. It means that you can only allocate 10% for building an emergency fund. Therefore, to build a month’s worth of emergency fund, it will take around 9 to 10 months. You can put your funds in digital savings account like GCash GSave, DiskarTech, or CIMB.
If we allocate the whole 13th-month pay for an emergency fund, we could easily build a month’s worth of funds. This could boost our morale and give us a good head start in saving more for it. On the other hand, if we apportion half of our 13th month pay for the emergency fund, that’s already half of a month’s worth of this fund. That’s way better than in the above example (10% monthly).
3. Save for your child’s educational fund
Years ago, I have attended for the first time the general assembly of a cooperative. Stickers were given to be placed on our shirt bearing an amount – the share capital of a cooperative member. I only had more than Php 5,000 if I remember it right. Some members – especially the older people – had amounts nearing 6 figures.
I asked someone I know how he got that amount. By the way, members normally only deposit the minimum share capital since they cannot withdraw as long as they are members of the cooperative. He said that every year during enrollment time, he borrows from the cooperative for the tuition of his children. Every time a member gets a loan, a percentage is deposited for share capital. His children were already in college at that time so just imagine the number of years that he was borrowing and paying for those educational loans.
There’s nothing wrong with borrowing for your children’s education especially if that’s a way for a family to meet ends meet. This is how most parents were able to bring their children to college. However, if we are capable of allotting our 13th-month pay or a portion of it in saving for our children’s tuition fees, that’s a very smart move. During enrollment, we will not be spending our precious time looking for funds or borrowing from friends or thru loans. Instead, we could focus more on preparing our children for the coming school year.
4. Invest your 13th-month pay
Another way to spend wisely your 13th-month pay is to invest in financial instruments such as UITF, mutual funds, or stocks. If you don’t have any investments yet, a portion of your 13th-month pay can be a good start. Initial investment starts at Php 1,000 nowadays. It’s very easy to open and these investments are also very accessible. For example, you can open a COL Financial account for only Php 1,000, and investing is done online.
Before you start investing, remember that it is risky and you may lose a percentage or your whole funds. So invest only the amount that you can afford to lose. As a safety net, you should have a considerable amount of emergency funds.
5. Start planning for retirement
You can also spend your 13th-month pay to start saving for retirement. The earlier you save for this fund, the more that you will be assured that you have a good amount of money in your senior years. You can open a special saving account for this purpose in your local bank.
To start saving for investment, you can also open a PERA account in BPI or BDO. The ‘Personal Equity and Retirement Account’ or PERA is a tax-free and voluntary investment program to encourage Filipinos to allot funds for retirement.
6. Invest in yourself
Invest in yourself by enrolling in a course that will help improve your personal, social, financial well-being.
You may also engage in an a hobby or activity that you enjoy the most. An example is this blog – The Wise Coin. It is my way of expressing my ideas and interest in talking about finances. I may have a few readers for now but writing blog posts and the lessons that come with it are already great rewards.
7. Start a small business
You can spend a portion of your 13th-month pay to start a small business. For example, you could engage in selling stuff online. However, please note that this takes some planning and there’s a possibility that we may lose money if the business fails.
Like most people, I regarded my 13th-month pay in the past as just a bonus, something that should be spent as a reward for working hard for the whole year.
The statement I adhered to that time was “Working tirelessly for many months, I have to buy something new. I deserve it!” I bought a new gadget, new clothes or any new stuff.
Well, that was my old self. Now, I regard the 13th-month pay as a means of achieving my financial objectives and not just acquiring something new.
In our modern society, a shift in mindset is needed. We are surrounded by various media of communication that promote consumerism.
If we are disciplined and smart enough to spend wisely our 13th-month pay for this year, we can be sure that one day, we will achieve financial independence.