Money and insurance

Hurray for 13th month pay! 8 money-smart moves you can make

It’s been a long year, and the holidays are on our minds. Which also means, of course, 13th month pay and Christmas bonuses.

These two much-awaited signs of holiday cheer often come a week or so apart, giving us a One-Day-Millionaire rush. But there are a few important differences between them.

As its name suggests, the Christmas bonus is an extra gift that your company can choose to award you or not. In contrast, 13th month pay is legally required from all Philippine private employers. If you joined or left the company partway through the year, your 13th month will be prorated by number of months. While not technically covered by the same law, government employees receive mid-year and year-end bonuses of one month’s pay each.

The law requires that 13th month pay be received by December 24 of each year. However, most companies deposit the amounts in employees’ accounts by early December.

How to compute your 13th month pay

While you can’t be sure how much your total bonus will be, you can compute your 13th month pay. Take your gross salary for the year – excluding allowances, overtime, tax shields and other reimbursables – and divide it by 12 months.

Of the resulting number, only the amount in excess of PHP90,000 is taxable, according to your government-declared tax bracket.

Budget your 13th month pay ahead of time

Once you have your 13th, what will you do with it?

It’s tempting to spend it all. But it’s not a wise financial practice. With a big chunk of cash, you can make money moves that work to your benefit year-round.

Once you have some ballpark figures, divide the money according to your goals. You can also consider these eight ways to turn your 13th month pay into a gift to self that keeps on giving.

The top 3

	Pay down your debt. Credit cards, loans and mortgages are good tools to make major purchases, but the interest definitely adds up. Use your 13th month to pay a chunk of the principal and as much interest as you can. It’s a simple but effective way to improve both your cash flow and your credit score.
	Start or add to your emergency fund. It’s prudent to have a buffer fund big enough to support your expenses for three to six months. Many adults in their twenties don’t have that yet. Start building your fund now.
	Invest in your future. This can take different forms. Invest literally, through investment funds, the stock or money market or other financial instruments. Invest in yourself, with professional training or certifications that qualify you for a higher salary. Or start up the side business you’ve always talked about.

Another very good option is an insurance policy. Choose a policy that you can customize to fit your goals and resources, with an annual payment that can be covered by your 13th month pay, like The One for Life | FWD Life PH for instance, which is an affordable plan that you can customize to add critical illness and accidental death cover depending on your need, or Set for Tomorrow which is life insurance coverage you can get for yourself that is meant to take care of your family in case you pass away, giving your family financial support during their time of need. Both can be applied online at FWD Shop with no medical exams required.

Practicalities

	Dental/medical tests for yourself and your family. Annual physical exams, lab tests, dental work. It’s tempting to put these off but getting them done when the funds are available is an act of self-care that will help you make decisive actions about looking after your health.
	Make home improvements like roofing, flooring and other major upgrades. Raising your quality of life as well as your property’s value, these are a good investment. Set aside the money now to keep your savings intact.

Reward yourself a little

	Take a vacation. Set alerts for seat sales or staycation promos and pay in cash once your 13th month pay arrives.
	Donate to your favorite charity. Get a formal receipt – it’s tax deductible!
	Indulge with a small splurge, like a new tech toy, luxury item or big-ticket experience. You have every right to reward yourself. Just pay most of it in cash to keep debt low and leave enough to start on a bigger reward later on.