Maximizing and Managing Your 13th Month Pay
The holiday season is a busy one, with lots of festivities, parties, and presents to buy. It’s also a great opportunity to take stock of your financial situation, especially since you’re expected to receive a welcome Christmas bonus and a 13th-month pay.
As you receive your final pay of the year, it’s good to know how to best handle your 13th-month pay and achieve more of your money goals in the coming year.
Understanding Your 13th Month Pay
In the Philippines, the 13th month pay is a mandatory financial benefit provided to employees by their employers.
This extra pay is meant to help rank-and-file employees (including government employees with some exemptions) with their additional expenses, especially during the holiday season, and help bolster their financial health.
This article answers some key questions about the 13th month pay:
Is 13th month pay mandatory?
The 13th-month pay is mandated by Presidential Decree No. 851 and is considered a statutory benefit signed by former President Ferdinand Marcos.
The article states that all rank-and-file employees are entitled to receive this additional payment from their employers.
However, according to the government, there are some exemptions to the mandate. According to the law, employees and workers who are paid on a contractual or task basis irrespective of time are not entitled to a 13th month pay, unless otherwise stipulated by the agreement with their employers.
How is the 13th month pay calculated?
The amount of the 13th-month pay is calculated as one-twelfth of the employees’ annual income or basic annual salary. The basic salary covers the stipulated one month pay and all mandatory and provisioned allowances.
Even employees who haven’t yet rendered an entire year of work for their current employers are entitled to a proportionate 13th month pay.
Their 13th month pay is calculated based on their total basic salary earned over the number of months they have worked within the calendar year.
When is the 13th month payment schedule?
Employers are required to release 13th month payment by December 24th of each year by law. Although, multiple employers pay out the 13th month pay in two installments.
Some employers choose to give their employees half of their 13th month pay by the end of the first half of the calendar year, around the end of June.
The second half would then be paid on or before December 24th together with other potential Christmas bonus and gifts.
Is the 13th month pay taxable?
As per the Republic Act No. 10653, the 13th month pay is not taxable unless the amount is above Php90,000.
How to Manage 13th Month Pay
Earning a stable income is one of the best ways you can be compensated for working hard. However, getting a 13th month pay can boost your morale and help you prepare for your financial future.
The 13th month pay is an extra month pay, and when you set a budget and allocate it appropriately, you can definitely get more than a months worth of opportunities
1. First Things First: Financial Obligations
Pay Off Debts
Debt can set you back from crucial financial goals. One of the best ways you can spend your 13th month pay is on debt payment. If you have multiple debts under different accounts, determine whether there is a particular high-interest debt that you can pay ahead to avoid growing interest rates.
Instead of spending money on interest rates, you can save money or spend it on something more meaningful in the future. This way, you can cut your expenses in the coming year.
2. Further Your Financial Goals
After debts are tackled, you should probably think about putting your 13th month pay towards savings and building your life-long financial goals.
Emergency Fund Building
One of the wisest ways you can spend your Christmas bonus and 13th month pay is by completing your emergency fund. Emergency savings is one of the funds you’ll need to start early with building.
As the name suggests, an emergency fund can prepare you for unforeseen and untoward events, such as a health issue or job loss.
According to financial experts, your emergency fund should be able to cover your household expenses for at least three to six months.
With this safety net, you can have some leeway to find new employment in a new company or start a business. With your 13th month pay, you can begin saving and preparing for your future with less worry.
Retirement Fund
Today’s workers are starting to build their life savings early so they can go into retirement stress-free. It also alleviates the financial stress on your family and loved ones in the long run.
While it’s best to set aside part of your monthly salary to put into your retirement, it would also help if you used a portion of your 13th month pay to this end.
3. Start Investing
Whether you’re looking for traditional investments or business investments, you can maximize your 13th month pay by spending it on a growing account.
Investment-Linked Insurance
Investment-linked insurance (ILI) is a type of life insurance policy that combines elements of both insurance and investment. Unlike traditional life insurance, where the premiums primarily go towards providing a death benefit, ILI allows you to allocate a portion of your money to investment funds.
This creates a link between the performance of the chosen business or corporate stocks and the value of the policy. Instead of leaving your money in a savings account, you can choose to invest in something more lucrative.
Health Insurance
With the health climate as it is, it’s a good idea to get robust health insurance. This is an especially important investment if your employer doesn’t provide you with an HMO.
While you may not be as ready to spend on an eventual expense like health insurance, it’s an important asset to maintain. There’s no guarantee to your health and if you get sick, it could cost you a significant amount of money.
Plus, it could pull you out of work. Getting insured could offer you the protection you need. If your 13th month pay allows it, you can even get plans for your family members and loved ones too.
Invest in a House
The best Christmas present you could give yourself and your family is a house you can consider your forever home. If there’s one thing you should be spending your bonus on, it should be a home.
While your monthly salary can help out with paying off your mortgage, your 13th month pay could provide you the stepping stone you need to put a down payment on the house of your dreams.
With a home of your own, you can focus on solidifying and accomplishing other life goals, whether that’s getting further education, starting your own business, or moving on up the company as an employee.
Where better to make a real estate investment than in Camella? Getting your money’s worth is our priority at Camella.
The prime real estate development company has stood steadfast in empowering employees to make the most of their salary. With reasonably priced homes, we offer developments that do not compromise on quality of life and amenities.
Let your year of labor and hard work pay off toward a long-term investment, such as a home in a master-planned community.
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