Pay your debts, build up your emergency funds, or boost your saving. Be smart on handling your 13th month pay.
Under Presidential Decree No. 851, employers from the private sector in the Philippines are required to pay their rank-and-file employees a Thirteenth 13th Month Pay not later than December 24 every year. The 13th month pay is equivalent to one twelfth (1/12) of an employee’s basic annual salary.
It is prescribed by Philippine labor laws as a mandatory benefit and should not be confused with the “Christmas bonus” commonly practiced in the local business setting. The Christmas bonus is not a demandable and enforceable obligation, and can only be released upon an employer’s voluntary discretion. It is usually granted by employers to show appreciation and gratitude for the service rendered by their employees within a year. The 13th month pay, on the other hand, is required by law and employers who fail to provide them by the end of the year are subject to legal scrutiny by the Department of Labor and Employment (DOLE).
So what are the best things to do on your 13th month pay?
Pay your debts
Debt can flat out ruin your holidays. The best scenario is to start the new year with a fresh balance sheet with a happy footnote that says “debt-free.” Pay your debts first before spending anything.
Now is the perfect time to get rid of your dues, or at least cut them. If you have unpaid credit card debt, settle them before even thinking about splurging. The same is true if you’re financing a car or a house; you can advance on your payments to free up space for the new year.
Start by listing down your debts and sorting them by priority. The largest and highest-interest debts should go first followed by smaller–less-urgent–ones. Trust me, there’s nothing like waking up and not stressing out about money. It’s liberating and refreshing.
Build up on your emergency funds
Building an emergency fund is not easy. With all your financial obligations, it can be painful to squeeze out a couple thousand bucks. It can be daunting but it is also necessary.
Think of an emergency fund as your safety net for whatever life throws at you. Building one is like buying peace of mind–financially at least. The rule of thumb is to have at least 3 months worth of your salary in a separate savings account. This will give you enough of a buffer to recover from most financial tragedies.
For a more in-depth guide on how to build an emergency fund, we wrote an article about it that you can read here.
Boost your savings
Saving is never a terrible idea and is something you can fall back on if you’re feeling lazy. You can transfer your bonus to a high-yielding account or let it grow in your payroll account.
Keep in mind though that there is a cost to idle money.
If you’re letting cash sit, you’re paying the opportunity cost for that amount. that is, the possible returns you could’ve gotten if you invested it instead. As much as possible, do not stash your cash. If you’re still unsure what to do at this point then consider this last one.
Deciding what to do with your bonus is significant enough to think long and hard about. Whatever you end up doing, remember one thing: avoid impulsive decisions.
Whether you’re spending, investing or saving your bonus, do it deliberately and diligently.