December is a happy month for many employees. This is the period when the 13the month pay, bonuses, and other incentives are paid out. The law mandates the payment of 13th month to all employees, subject to exemptions, computed as 1/12 of the annual salary. This additional pay must be paid not later December 24. Before you spend your 13 month pay and bonuses in new clothes, gadgets, and buffet dinners, browse through these 9 tips on how to spend your bonus wisely. The biggest leap you can make to adulthood is being financially literate.
Clear your debts
Your favorite shoe brand is holding a clearance sale? Hold your horses! The first thing you should spend your extra money on is your debts. Check out your journal for people you owe money, credit card bills, cell phone bills, etc. If you can clear all your obligations, do so. You can also pay some of your on-going monthly obligations such as amortizations a couple of months in advance. The best way to invest your bonus money is to reduce the stressors waiting for you after the holidays.
Build an emergency fund
After paying off your debts, or even placing your dues up to date, the next item you should spend on is your emergency fund. According to financial group Vanguard, an emergency fund is “a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.” Prepare for possible job loss, medical emergencies, unexpected home repairs, etc. As a rule of thumb, an emergency fund should be equivalent to at least 6 months of your expenditures.
Fund your health insurance
What to do with your bonus? If your employer is not extending comprehensive health insurance coverage, you should purchase your own. A health insurance can cover emergency medical needs, hospitalization, surgery, and medicines. The price and features shall depend on your age, health profile, and other factors. It’s time to stop putting everything to fate. Take action by insuring your health.
Start a life insurance
What are the best ways to spend your Christmas bonus? Your expenditures should primarily be for your peace of mind. What were your stressors in the past months? Did you or a family member struggle from a sickness? Did you have work-related issues that threatened your employment? Make sure you’re better prepared for these by investing your bonuses well. A life insurance is a safety net against financial losses due to the untimely death of the head of the family or breadwinner. There are newer plans that cover serious diseases including cancers. Explore various types of life insurance such as the traditional plans and variable insurance.
Invest in stocks and bonds
Once you’ve paid your obligations, built an emergency fund, and secured your health and life insurance, you can then explore investment opportunities. Take note that your investment vehicles should be yielding returns higher than the prevailing inflation rate. Inflation rate is the measure of the increase in the price of goods and services. A high inflation rate weakens the purchasing power of currency. If the prevailing inflation rate is 6%, your investments should be earning more that this rate. Otherwise, your money is better spent today.
You can start a stock investment account with your 13th month pay. There’s a lot of online stock brokers that offer good deals, low trading fees, and 24/7 customer service. These brokers also give access to various capital markets from China to London, from beta stocks to corporate bonds.
Mutual funds: your long-term investment fund
Are there wise investments for your 13th month pay? Yes, a lot actually. You may have heard, or tried, stock investing. This is one of the most common investing vehicles anywhere. However, stock investing requires skills, or lots of money if you choose to deal with a professional broker/trader. You have a more affordable and easier way to participate in capital markets: via mutual funds. Mutual funds are baskets of investment products—stocks, bonds, bank deposits, etc.—that are managed by a fund management team. It democratizes wealth by letting a number of investors share the risk and management cost of a fund. Mutual funds are used as a retirement fund, educational plan, and to meet other long-term financial needs.
Explore condo investment options
Real estate is another investment option for you. Today, more people prefer to live in condo communities that provide everything from round-the-clock security to access to lifestyle amenities. Condo living offers a reprieve from the toxicity of the city. Condo investment is one of the hottest passive income generators in recent years, thanks to the rising demand from millennial professionals. You can earn from short-term leasing from vacationers or long-term rental from workers or small families. Your Christmas bonus can help you start your first real estate property through a condo down payment.
Turn your home eco-friendly
After securing the first seven items, you can then spend your money guilt-free. How to spend bonus money? Change old appliances with eco-efficient models. This can help reduce your energy consumption and carbon footprint. You can also opt for solar-powered electronics. If you have more cash, turn your home into a smart home to help you regulate your energy use.
Spend on essential stuff
When spending your hard-earned money, whether your salary or Christmas bonus, choose only those that will truly serve your purposes. If sleeping on your bed mattress is starting to cause back ache and muscle pain, it’s time to replace your bed. You may also need to renovate your kitchen to allow greater room for movement. Install additional cupboards and drawers for extra space.
The Christmas season is becoming synonymous to a celebration of consumerism. People flock to shopping malls eager to spend money that could otherwise be used to pay debts and start investment funds. Remember that the true essence of this period is about the birth of Christ in a stable. Focus on things that matter. If you’re going to spend, spend for your peace of mind.