The year is coming to a close and we all know what that means: your long-awaited 13th month salary is here. Before your start justifying expensive purchases, take 5 minutes to hear me out.
Read more: How Can I Avoid Debt This Holiday Season
Needless to say, you shouldn’t squander your 13th month bonus. How, why, and where you spend it may determine your financial situation for the coming year. Which brings us to the big question: will you cave in to the temptation of those shoes you’ve been looking at all year? That shiny new iPhone? Or will you be practical and invest your windfall?
Consider the following ideas to make the most out of your big bucks.
1. 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.”
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.
2. Invest it in a UITF
A Unit Investment Trust Fund or UITF is the perfect investment for beginners. It’s also for seasoned investors looking to diversify! A UITF is type of pooled fund run by trusted entities such as banks who hire seasoned experts to do the grunt work.
You have a lot of options depending on the risk you want to take on. Go conservative with a money market fund or aggressive with equity funds.
The best thing about UITFs is you get peace of mind. Remember, you’re dealing with a credible financial institution with a proven track record.
Yes, UITFs are great but it’s not your only investment option. Go for a high-yielding savings account like a Time Deposit or Fixed Income Securities like RTBs or LTNCDS (both of which have limited runs).There’s also traditional investments like stocks and properties.
3. Build up your emergency fund
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.
4. Plan for Retirement
“Isn’t it to soon?” you might say. Planning for retirement at an early age is one of the most rewarding gifts you can get this Christmas. Not only for yourself, but for your family as well.
Most Filipinos don’t prepare for retirement. And that might be an understatement.
According to a study conducted by the Global Aging Institute and Pru Life UK in 2015, about 9 in 10 Filipino workers “are very anxious about exhausting their savings, being poor in health, and having no one to care for them or being a burden on their children when they retire.”
Yes, you can be that 1 in 10 but you have to start early and plan carefully. If it’s not clear yet, what I’m trying to tell you is to use your incoming bonus as the base of your retirement fund. Allot 20-30% to a separate fund and start a habit of directing some of your monthly salary to it.
5. Get life insurance
There is almost no downside and lots of upside in getting life insurance. It’s the safety net for both you and your family. Worried if you can afford life insurance? You can actually get it for free.
6. 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.
But do so wisely. Sales and deals are aplenty during this time of year so you won’t have to pay full price for anything. If you’re not patient enough to wait for deals, you can get a rebate credit card instead. In a way, it’ll give you discounts all-year round!
A credit card also lets you access exclusive promos of the bank’s partner merchants. Oh and about those promos. Your bank’s promo pages is actually a gold mine of discounts with buy 1 take 1 deals and big. You can view our lineup of credit cards here.
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.