Receiving a 13th month pay is a significant opportunity for many employees. It’s a welcome addition to end-of-year finances, providing an opportunity to manage money wisely. Instead of spending it all on gifts and celebrations, here are five smart ways to allocate your 13th month pay to set yourself up for a financially sound future:

1. Pay Down Debt

Debt repayment is one of the most effective uses of any windfall, including your 13th month pay. High-interest debts, especially credit card balances, can drain your finances over time if left unchecked. By paying off or reducing these balances, you’ll be saving money in interest, improving your credit score, and relieving yourself of financial stress. The Bible reminds us in Proverbs 22:7, “The borrower is the slave of the lender,” so freeing yourself from debt can lead to greater financial freedom.

Pro Tip: Start by paying off debts with the highest interest rates first. If you have multiple debts, consider the debt avalanche method (paying off high-interest debt first) or the debt snowball method (paying off smaller debts first for motivational momentum).

2. Set Aside for Tithing or Charitable Giving

If tithing or charitable giving is part of your financial routine, consider setting aside a portion of your 13th month pay for this purpose. Giving is not only a way to express gratitude for your blessings, but it also cultivates a spirit of generosity. In 2 Corinthians 9:7, it says, “God loves a cheerful giver.” Using part of your extra income for tithing or charitable giving can bring a sense of joy, purpose, and fulfillment, especially during the holiday season.

Pro Tip: Decide on a fixed percentage of your 13th month pay that you’d like to dedicate to giving. This could be 10% for tithing or any amount that aligns with your financial values.

3. Build or Boost Your Emergency Fund

An emergency fund is your financial safety net for unexpected situations, such as medical emergencies, car repairs, or job loss. Financial experts often recommend setting aside three to six months’ worth of living expenses in an easily accessible savings account. If you haven’t yet built an emergency fund or if your existing fund could use a boost, your 13th month pay is a great opportunity to grow this crucial safety net.

Pro Tip: Open a high-yield savings account specifically for your emergency fund. This way, your savings can grow with interest while remaining accessible if you need it.

4. Invest for the Future

Investing part of your 13th month pay can help you grow your wealth over time. The earlier you start investing, the more you benefit from the power of compounding interest. There are many options for investments, such as stocks, mutual funds, or even retirement accounts. It’s wise to begin with a basic understanding of these investment vehicles and consult a financial advisor if needed. Proverbs 21:20 says, “The wise store up choice food and olive oil, but fools gulp theirs down,” highlighting the wisdom in preparing for the future.

Pro Tip: Start with a conservative investment in a mutual fund or a diversified portfolio if you’re new to investing. Consistency and time are your best friends in building wealth through investments.

5. Reward Yourself Wisely

Finally, while it’s essential to be prudent with your 13th month pay, it’s also okay to set aside a small portion to reward yourself for your hard work throughout the year. This doesn’t have to be extravagant—maybe it’s a nice dinner, a short trip, or a gift you’ve been wanting. Giving yourself a modest reward can help keep you motivated to stay on track with your financial goals.

Pro Tip: Allocate a set percentage (like 5-10%) for personal enjoyment. This way, you indulge yourself a bit without straying from your financial goals.

By paying down debt, tithing, boosting your emergency fund, investing, and rewarding yourself wisely, you’re using your 13th month pay to create long-term financial stability. Remember, every financial decision you make today can have a lasting impact on your future. Enjoy the fruits of your hard work, and use this blessing as a stepping stone towards a brighter financial future!

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 three to 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, variable universal life insurance 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 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) 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)

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)