Your 13th month pay, as a standard provision of the Philippine labor law, is “one-twelfth (1/12) of your basic salary within the calendar year.” Your basic salary, as defined by labor law, includes all monetary remunerations or earnings, but not the allowances and other benefits which are not considered or integrated a part of your regular salary (i.e., cash equivalent of unused vacation and sick leaves, night differentials, overtime, and holiday pays). You can always search Google for more details.
Equally important, your 13th month pay must be paid not later than December 24 (a day before Christmas) of each year. That means, you might have already received yours as you chance to read this article, and you’re doing your personal homework on how to spend it wisely. Whoa, you’re getting financially literate then!
When I received my 13th month pay (and the 14th ) last year, I ended up paying myself – reserved fractions for my life insurance premium and tuition fees (graduate school), sent mom and dad my cash gifts, and put excess in my emergency fund. I managed not to do the pre-Christmas splurge again, a regretful experience I once had.
As much as I am excited to receive my 13th month pay at the end of this month or early December, I intend to dole it out to investments which I started more than a year ago. Along with investment ideas, here are a few smartest ways on how to spend your 13th month pay:
1. Savings | Emergency Fund
Technically, your 13th month pay is a year-end bonus, a reward for your hard work. It’s not part of your regular earnings, hence should not inflate your budget for discretionary expenses in the next few weeks.
With your 13th month pay, you can start building your emergency fund. In a nutshell, your emergency fund is your personal reserves for unforeseen expenses. Unless you have a reasonable amount (roughly six months of living expenses) for this purpose that you can divert your savings to innovative financial goals such small business and investment ideas.
2. Investment Capital
Aside from savings and emergency fund, you can also allocate a fraction of your 13th month pay to safe and secure investment vehicles. Assess your investment horizons and risk tolerance, and the web offers a vast resource of guides on and tips for making wise investments – mutual funds, unit investment trust funds (UITFs), government and corporate bonds, stocks, and real estate.
You can also take advantage of the pre-Christmas stock market dips when investors take year-end profits and stock prices drop. Anyway, you can have a few work days off to open a stock investment account with the local brokerage firms, and most of them offer a startup stock investment account for as low as PHP 5, 000.00. Read more about stock investment with COL Financial here.
3. Personal Development
Yes, and yes. Also known as self-development and personal growth, personal development includes the development of life skills and of realistic and healthy self-esteem.
You can use your 13th month pay to fuel up your burning passion and interests – publishing a book, attending financial literacy seminars, traveling across the country and gaining new experiences through cultural encounters, getting closer with relatives through reunions, and many other worthwhile activities – that help you become more productive and get into the positive state of mind. In other words, these drive you out (even for a while) of the harsh realities of being a ‘corporate slave.’
Your personal development program might have been part of your discretionary fund (both expenses and savings). Since you will have an extra from your 13th month pay, you can now have the goals realized. As soon as you come back to work after your Christmas break alongside your personal development activities, you can surely have fresh and positive perspectives towards life and career, hence with renewed creativity and productivity.
4. Debt Payment
You’re supposed to treat yourself with your 13th month pay for all the hard work, but you have debts with compounding interest. You decide – use your 13th month pay to pay off your debts and worry no more about the interest, or stick to your debt pay-down plan and remain indebted and troubled for the next few months or years. Remember that your receipt of 13th month pay is just an opportunity. Still, you’re the one to decide.
Paying off debts with all your 13th month pay can be really upsetting, but it’s your financial obligation. After all, you might have spent the borrowed amount on emergency expenses, and not on splurges.
Other smart ways to spend your 13th month pay include buying Christmas gifts for family members and relatives, venturing into small or seasonal business ideas, and donating to charity. If you find this article helpful, please click the Facebook or Twitter icon and share it to your friends and colleagues.