Adulting 101: What to do with your 13th month pay

MANILA, Philippines – The government and most corporations give out the 13th month pay of employees in November. By law, it should be given not later than the 24th of December.

This holiday bonus is often the reason why spending increases in the last months of every year. But are you using it wisely?

Here are some tips and suggestions on how you could use your 13th month pay effectively.

Share your blessings

In the spirit of thanksgiving, learn how to share blessings you reaped this year. Practice giving and be generous. As they say, it is better to give than to receive.

You bring positive energy to the universe when you share. And, I believe, it gives back positive karmic energy. I also think that we should only give what we can afford. That’s why we have to be responsible when giving.

One should be financially stable to be able to extend financial help. Never feel obliged to extend financial help when you are not yet financially stable. Help yourself first. 

Here are 3 quick indicators to determine whether you are financially stable:

1. Having an emergency fund/savings equivalent to 9 months of expenses
2. Adequate life and health insurance coverage
3. Passive income that gradually increases as you age

Alternatively, you can share your time and energy if you are not yet financially stable and use your 13th month pay to boost your financial standing. Here are my guidelines on how to help others financially.

Free yourself

If you have outstanding loans or unpaid debts, use your 13th month pay to settle these. Nothing beats the feeling of becoming free from the shackles of debt.

Loans should be used for productive purposes only – activities that earn money. You should prioritize paying your debts with your 13th month pay all the more if used loans for simple consumption or to finance your “wants.”

The amount you’ll get might not be enough to wipe out your debt but it can be used to reduce your monthly amortization or pay off your loan faster. Know good uses of loans and bad uses of loans.

Protect your loved ones

Use your Christmas bonus or 13th month pay to buy insurance. Show your loved ones how much you love them by giving them protection in case something happens to you.

If you have dependents, it is a must that you get medical and health insurance. If you can’t afford both, health insurance will do and you’re better off using the budget for life insurance to directly invest. 

Avoid the temptation to buy investment-linked insurance – also called variable universal life insurance. It is better to follow the “Buy Term, Invest the Difference” strategy to make the most out of your hard-earned money. 

Prepare for your future

You can also use your 13th month pay to prepare for your future. Use this to beef up your emergency savings or emergency fund if you haven’t yet. You will never go wrong with saving for rainy days. 

Understandably, it is very tempting to spend your 13th month pay, especially during the holiday season. You need not spend all of it immediately. My favorite definition of savings is this: Savings is the postponement of the pleasure of spending.

Following that definition, you are already saving when you postpone spending on that rush seat sale (save for your future dream vacation instead!). Think of something that excites you and make this your inspiration and motivation to save.

Learn some savings tricks and hacks to save for “sunny days.”

Start investing

One of the best gifts you could give yourself is an investment. There are a lot of traditional investments to choose from – time deposits, mutual funds, unit investment trust funds, and even the stock market.

I strongly recommend that you also take a look at Pag-IBIG MP2 and SSS Flexi/Peso Fund. These financial products carry 100% government guarantee and provide returns that beat inflation. These two are a good match for financial goals that need capital preservation and have a long-term time horizon. 

Try social investments

As a social entrepreneur, I promote social investments. These are investments that provide modest returns but also have a social and/or environmental agenda. Not only do you enjoy good returns but you also contribute to improving the quality of life of the poor and to protecting the environment.

Examples of social investments include investing in strong cooperatives through savings or share capital, and time deposits in rural banks. These investments directly help farmers, fisherfolks, small artisans, and microenterprises that spur local economic development.

You can also invest in social enterprises and microfinance institutions. You can check my list of social investments here. 

Relax and recharge 

Lastly, you can opt to use the money to relax and recharge. This is your way of rewarding yourself for working hard this year.

I hope though that you won’t spend all your 13th month pay for this purpose alone. Aside from spending, you can enjoy family time and simple joys.

At the end of the day, the best way to maximize your 13th month pay is to use it to reward yourself a bit and allot a significant part of it in improving your financial situation. – Rappler.com

Vince Rapisura is a faculty member of the Ateneo de Manila University and is also the founder of SEDPI Group of Social Enterprises. 

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