Debts & Loans

Question: December is coming up and all of us in the office are excited to receive our 13th month pay. In the past years, I have used up my 13th month pay as my Christmas budget for gifts and for myself. So nothing is left. This year, I want to be wiser in how I use it since times are hard. Please advise how one can use up the 13th month pay wisely. – John

Answer: Philippine law (through Presidential Decree 851 and modified through Memorandum Order No. 28) mandates the giving of 13th month pay to all employees regardless of status (regular, probationary, casual, temporary) as long as they have worked for at least a month in the calendar year. Even those who have resigned from their jobs or were terminated are entitled to 13th month pay in proportion to the length of time they have rendered services to the company.

The amount of 13th month pay is computed by multiplying the basic monthly salary by the number of months worked in the current year by 12. Allowances and other fringe benefits are not included in the computation. The 13th month pay not exceeding P30,000 is tax-exempt. Over that amount, taxes may be withheld.

Because it is extra income received during a festive season, it is not unusual for employees to splurge the money to celebrate or buy gifts. Many employees, for instance, put off Christmas shopping until they get their 13th month pay to avoid touching their savings and regular monthly income. But like you, they realize that after the season, their 13th month pay has evaporated into thin air, and it took only a week or two to spend it all.

It’s good that you have resolved to use your 13th month pay in a better way.

Here are some things you can do with your 13th month pay:



1. Pay off debt. If you have substantial credit card debt or other forms of debt, use your 13th month pay to pare down this debt. This will help you shorten the paying period and lower your interest expense. Being debt-free is liberating and will improve your financial standing.

2. Save. If you haven’t started a savings fund at all, this is the time to do so. We’re up for uncertain times ahead financially because of the global financial slowdown, so save when you can. Use the full amount of your 13th month pay to jumpstart your savings fund, or if you have other needs to meet, save at least 10 to 20 percent of your 13th month pay.

3. Invest. Saving is putting away money for the future. Investing is making that money work for you. If you put your money in investment vehicles, it is possible to earn interest or yield on it without you having to put extra work in.

Examples of investments you can go into using the amount received as your 13th month pay include: time deposits, mutual funds, unit investment trust funds, and equities or stocks. Time deposits give a higher rate of return than savings accounts, but your money will have to be locked up for the entire term (e.g., 30 days, 60 days, 360 days, etc.). You can have a more diversified investment portfolio using mutual funds and UITFs which are available through financial institutions and banks, respectively. With these, you can invest for as little as P5,000. Mutual funds and UITFs come in different forms and may invest in fixed income instruments, bonds, or stocks, or a combination of these. With direct investment in stocks, on the other hand, you may take your pick of a company stock and invest for the long haul even with just the minimum board lot (minimum investment required).

Investments come with certain risks, so study the matter thoroughly before jumping in. We recommend consulting with an investment specialist that can help you determine your risk appetite and investment horizon – two critical things to know before you get started.

4. Start a small business. Yes, you can do this even with just a small capital. Use your 13th month pay, for instance, in buying ingredients and start a cupcake business you can attend to during the weekends. If you like fashion, buy clothes wholesale in bargain centers or have clothing apparel subcontracted then sell these to your friends and officemates. You may be surprised that some businesses can be started with just P5,000 to P30,000 in capital.

5. Share. The Christmas season is a time for giving and sharing, so why not share your blessings? Many orphanages would be happy to receive a donation for orphaned kids. Some organizations like World Vision and UNICEF also let you sponsor a child’s education for as little as P450 a month or meet their needs in other ways. There are also a lot of people needing medical help, and it will be a blessing to them if funds can be coursed through organizations like Kythe, among others.

Those are already five wise ways to spend your 13th month pay, and we haven’t included shopping yet. Think about it and decide wisely.