QUESTION: It’s almost the end of the year, and I’m excited for my 13th month pay. I plan to use it to buy Christmas gifts for my family and friends, but I know I’m not supposed to spend all of it. What are the best ways to use the extra money?—Emily via e-mail

Answer: Ah, yes—the 13th month pay. For others, it even reaches the 15th month. That’s one to three months’ salary. There’s a lot you can do with the money, such as use it to buy Christmas presents, but I strongly suggest that you not spend it all. Aside from saving a part of the money, below are 10 things you can do with your 13th month pay:

1) Remove it from your payroll account
You probably have a question mark on your face, until you realize that inflation is eating up the value of your money. Unless you have P1 million in your account, you’re only earning 0.25 percent in interest yearly versus the 4 percent inflation rate in the Philippines last 2014. Withdraw a portion of your money from your payroll account and put it into higher-yielding accounts such as time deposits or investment accounts.

2) Plan and allot
According to research from the National Endowment for Financial Education, roughly 70 percent of people who come into windfalls end up broke within seven years. This is because they aren’t used to managing a large sum. Before you spend your 13th month pay, plan how you’re going to use it. Set a specific percentage which will go to savings, investments, and debt payments among others.

3) Increase your emergency fund
If you don’t have an emergency fund yet (roughly six months of living expenses), allocate a portion of your money to building one. This fund prepares you for unforeseen expenses such as emergency health costs, a sudden home repair, and even a job loss.

4) Build up your retirement fund
Your retirement fund is different from your emergency fund. Where the latter protects you from unforeseen events in the near future, your retirement fund prepares you for the more long-term future. As mentioned a while ago, remove the money from low-yielding accounts such as your savings or checking account, and put it in higher-yielding accounts such as investments.

5) Invest
There are many investments to choose from—mutual funds, unit investment trust funds (UITFs), stocks and real estate to name a few. Your choice will depend on your risk tolerance. Whether you’re investing in mutual funds or the stock market, you’re sure to beat the 0.25 percent inflation rate of savings and checking accounts.

6) Pay off or reduce debt
Speed up your debt payment timeline and use a part of your 13th month pay to pay your debts, be it credit card debt, personal loans, car monthly payments, or what have you. Remember that the interest rates on these debts are sky high—it’s 3.5 percent a month for late credit card payments —so use the small windfall to tackle high-interest debt.

7) Important repairs
Your home may need a few repairs. For this, it’s best to resolve these sooner rather than later. Taking preventive rather than corrective measures may save you big bucks in the future. If you put off repairing a plumbing leak, you may end up spending big bucks when your flooring or walls are affected by the leak.

8) Fund a fund
Whether it’s your travel or shoe fund, you can set a portion of your 13th month pay to fund items or experiences you’ve been saving up for. If you love to save, you may have forgotten to treat yourself. You probably don’t remember the last time you went on a vacation or treated yourself to a nice dinner out. You deserve some relief from time to time, so set a portion to ramp up any ‘fun’ funds you have.

9) Spend on yourself
Related to the above, it’s hard to penny pinch all the time. It’s important to prepare for your future, but it shouldn’t be at the expense or to the detriment of your present self. Decades down the road, when you’re reliving your younger years to your grandchildren or to your friends during your university’s 50th-year reunion, you don’t want to stand on the sidelines without anything to say. Once you’ve made sure you’ve saved up for your future self, treat your present self to something nice. To have an easier time managing your ‘fun’ money from your savings or retirement fund, have separate accounts depending on what you’ll use the money for.

10) Donate or Bless others
Last but definitely not the least, share your blessings with others. Whether it’s donating to your local church or a cause you feel strongly about, never forget to give back. This develops the core value of sharing wealth with others in need and teaches you to appreciate the material goods you have. It’s also a reminder of stewardship and that money is really the Lord’s—we are merely managers.
There are many ways to use your 13th month pay. The bottom line is proper money management. Money is not a means to an end; it’s a vehicle for us to do what we want—whether it’s living a comfortable retirement or going on the vacation you’ve always dreamt of. When you receive your 13th month pay, don’t spend it all in one go. Budget and plan it, and if you can, share it.

“The wise have wealth and luxury, but fools spend whatever they get.” (Proverbs 21:20, NLT)

I would like to invite you to join me as I cap the final installment of “Secrets of the Rich” series this November 25, 2015 (Wednesday) at 7:00 pm. I will be discussing sound financial principles on building wealth and will also give you practical tips on where and how you can grow your money.

This event is for FREE and it is open to all, however I suggest that you come early so that you can get good seats. The event will take place at Victory Green Hills main hall at the 4th Level of V Mall, Green Hills, San Juan City.

Thank you Victory Green Hills for organizing this life-changing events.

See you there!

The Philippines ranks in the top 10 globally of consumers intent on purchasing a car in the next two years according to the Nielsen Global Survey of Automotive Demand. Another interesting fact is that the Philippines ranks highest globally among current car owners intending to upgrade their cars. With the automotive industry in the country booming – the year-on-year car sales for the month of January 2015 increased by 19.3% according to CAMPI* –this means that more cars on the roads equals higher chances for accidents. Unfortunately, there’s no way to tell when an accident will strike, no matter how prepared we are. Aside from driving defensively, the best way to protect ourselves on the road is to have car insurance.

I talked to a MoneyMax.ph representative, the Philippines’ leading comparison platform for car insurance, on the need-to-know when buying one. A common fact I received is that many prefer to get the lowest premium even if this is not always the best choice. Read on to find out common car insurance mistakes Pinoys make when shopping for such:

1. Using price as the determining factor

Monthly premium payments for car insurance can take up a portion of our monthly budget. We know the importance of insurance, so people apply for insurance just for the sake of having insurance and thus settle for the most affordable price. Settling for the cheapest option can be a mistake when you’re not getting the coverage you need. Make sure that before you agree to an insurance policy and its pricing, read the entire policy from front to back. Ensure that everything you agreed on with the adviser is stated in the policy. Coverage you may look for includes the following: road assistance, legal assistance, and acts of nature coverage.

2. Undervaluing your car to get a smaller premium

Say your car has a fair market value (FMV) of Php 1 million, but you prefer to value it at Php 800,000 to get a lower insurance premium. You may save on your monthly insurance payment, but in the unfortunate event that you get into an accident and your car is totaled, you may not be able to get the total coverage fit for your million-peso car. This is because a lower premium payment will you give you insurance coverage for a vehicle of lower FMV. When buying car insurance, it’s best to state the full FMV of your vehicle to get complete insurance coverage.

3. Failing to research and shop around

Shopping for car insurance, be it online or hopping from one broker to another, may be tiresome. Visiting one webpage to the next can take up a chunk for your time, and you may find yourself experiencing analysis paralysis with all the information you’ve found. Now, you need to find the best deal for you. This may be tiring, but it’s best to research and shop around if you want to get the best deal. This is the beauty of financial comparison websites, such as MoneyMax.ph. You have everything you need in one place, just like a department store. Using comparison platforms will give you the information you need – in this case, car insurance coverage from the country’s leading providers – all in one page. It definitely pays to do your research.

4. Not considering additional coverage

Additional coverage may include roadside assistance, fire and external explosion protection, and an Acts of Nature coverage which protects your car against natural disasters. It’s best to discuss your insurance application in full detail with your agent. This way you can ensure that you’re getting complete coverage for an affordable price. With the Philippines experiencing an average of 20 typhoons a year, you may consider an Acts of Nature coverage which covers you from natural disasters, such as typhoons, floods, and earthquakes among others.

5. Forgetting to ask for a discount

Car insurance rates vary depending on the type of driver you are. If you have a squeaky clean driving record, don’t hesitate to ask your agent for a discount on your insurance. You might just be able to shave a few pesos off your monthly payments. This is because having a good driving record and having safe driving habits make you less likely to get into an accident and make an insurance claim. If you believe that you won’t be claiming your car insurance on a regular basis, don’t hesitate to ask for a discount.

Need for speed

Driving a car gets us from points A to B in the fastest and most convenient way possible; however, it’s best to be safe. This means driving safely and having the peace of mind that you’re protected with car insurance. I hope that my chat with MoneyMax.ph was able to help you.

*Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI)