(SPOT.ph) Surrounded by Mandaluyong's shopping malls, bars and food parks, research associate Renz knew he had to resort to drastic measures to protect his 13th month pay from unnecessary spending. Even before the "ber" months, he opened a bank account specifically to safeguard his year-end bonus for use only when the time is right, and not for budol.
The 25-year-old is planning an out-of-town trip with his mom, a birthday dinner for himself, and a simple Noche Buena with his family this December, so he makes sure that his hard-earned 13th Month windfall will be spent only for essential expenses.
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“Maingat talaga ako sa paggastos at talagang naka-itemize na kung saan ko gagamitin yung 13th month pay ko kapag dumating na. Mahirap na kasi baka kung saan ko lang magastos, sayang naman,” he told SPOT.ph.
When the city expects you to spend more as the holiday season approaches, how can you make good use of your extra earnings? For a financial adviser, it boils down to proper financial management.
“Sa dami ng temptation sa paligid mo, malilito ka, ano ba dapat ang unahin? So you end up spending everything. Kung hindi natin siya i-manage, hindi natin mamamalayan na ubos na pala yung ating bonus,” financial coach Joanna Marie Almonte-Detera said in an interview.
“Kung meron kang financial management, may someone na tumulong sayo or ikaw mismo, lahat mabibigyan mo. Hati-hati na siya nang maayos imbes na lahat ng bonus napunta lang sayo,” she added.
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How to compute and budget your 13th month pay
Rank-and-file employees who have rendered at least one month of service in their current company are entitled to a 13th month pay, as mandated by law. Basically, it's an entire month's pay without deductions for employee benefits and minus taxes when applicable.
If the employee worked for a full year without any unpaid absences, the 13th month pay should be equivalent to a month's salary. Otherwise, it will be pro-rated.
Companies traditionally give their employees’ 13th month pay and other bonuses by the end of the year when expenses are usually higher due to Christmas and New Year celebrations.
But while employees are free to use their extra earnings however they want, it’s always good to know how to spend their money wisely so that they will not enter the new year in financial ruin, Almonte-Detera said.
For those who need tips on how to budget their 13th month pay and other bonuses, here’s what you can do, according to Almonte-Detera:
Pay yourself first
There is nothing wrong with spending your 13th month pay for a vacation, or a gadget you’ve always wanted. But if there is extra cash, make sure that you prioritize essential expenses like your rent, utility bills, and groceries before anything else, Almonte-Detera said.
“Hindi naman ito sa Christmas bonus lang. Every sahod mo, pay yourself first talaga. Once you receive your paycheck, pay yourself first,” she said.
How should you allocate your finances? Almonte-Detera suggested to follow the 50-30-20 rule, where 50% of your income goes to operating expenses like food, rent, and other bills, 30% for investment and savings, and 20% for leisure.
You may choose to spend a portion of the 50% for your holiday expenses, such as for gifts for your loved ones or your godchildren, or for a get-together with other members of your family, Almonte-Detera said.
The 30% can be used to boost up your savings or restock your emergency fund, while the remaining 20% can be used for whatever you want to buy for yourself, she added.
“Ilagay mo na talaga siya sa sistema mo na once na meron ka nang sahod or bonus, save agad,” she also said.
Invest in your future
New Year is a good time to start an investment or get an insurance policy as many people have extra cash from their holiday bonuses. Doing so will allow you to be financially ready for whatever emergency that will come years from now.
“Pay your debt kung meron kang utang. Pwedeng bawasan mo siya para hindi na siya masyadong nag-iinteres. Second, mag-save and invest ka from 30%,” Almonte-Detera said.
You may choose not to put all your money in one investment alone. Half of the 30% may go to your savings, while the other half can be put in various investment options, like cryptocurrency or even for a small business.
“Pwede natin yun gamitin to start a side hustle para in the future, meron pa tayong babalikan at sasabihin na ito ang bunga ng aking Christmas bonus,” Almonte-Detera said.
Lastly, your 13th month pay and holiday bonuses are your rewards for working hard all year long. So if you have extra money, you can also use it for whatever that will make you happy, Almonte-Detera said.
“Ano mang gusto mong bilhin para sa sarili mo, deserve mo yan,” she said. “Gusto mo talaga magbakasyon instead of buying something else? Edi okay, experience na lang.”
In the end, you don’t have to tighten your purse strings just to feel the Christmas spirit, as long as you know how to spend your extra money wisely.
“Ang kailangan lang talaga natin gawin, check your finances, manage your finances properly,” Almonte-Detera said.
Joanna Marie Almonte-Detera is an engineer by profession and a certified investment advisor and financial coach. Reach out to her here if you need advice on financial management.