The extra cash that comes during the latter part of the year is always a welcome financial reprieve—but why does it seem that the money doesn't really last? It's not even about being ubos-biyaya, as there are expenses that can't be helped, and while these can't be compromised, you can actually manage your money in such a way that you don't feel the brunt of your payables so much.
We reached out to financial expert and MoneyDoctors Inc. President Joe Ferreria, who shared tips on how to smartly use your 13th month pay and Christmas bonus, and how to manage your expenses in general. You'd be surprised at how a few tweaks (and doing away with practices you thought were okay but are actually not) can make you more financially secure.
FemaleNetwork.com: What are the most common money mistakes that people receiving extra income (especially this Christmas season) commit?
Joe Ferreria: Majority of people would pay their bills two days after receiving their pay. This is a very bad habit that sets you up for financial failure.
You have to pre-plan all expenses. On the last day of the month, draw up the list of payables for the upcoming month. Fund your disbursement account with what you need, and pay your bills as [they] come. What happens is you pay expenses and the funds go down but when you get your paycheck, the amount is restored back. Pre-plan and pay as you go.
If you don't have the one month's expenses on hand, discipline yourself to set aside 10 percent or more of your income. In ten months, you would have the entire month's expenses at hand and will allow you to do the pre-planning system.
Because your money psychology is to receive and pay within two days, the same thing happens when you receive your Christmas bonus. The money will never see Christmas because you have been so used to burning everything within the two days after receiving it. Change the spending patterns and you will be able to set aside that 13th pay forever.
FN: What's the smartest thing that one can do with extra income?
On spending and paying debt
JF: Get 10 percent of your bonus and spend it, that should take away the itch. Keep the rest forever.
For debts, you should develop a plan to slowly eliminate it. When you get a windfall, the worst mistake is using it to pay off things. The reason you borrowed money is because you got to a point of zero liquidity. There is no money in the bank so you resorted to borrowing.
Examine your expenses, it should only be 70 percent of your net income after taxes. Line up your debts and get a portion of your salary as regular payments for loans. If you are in a money crisis, you need the help of a financial consultant to help you navigate the route to zero loans. Don't feel so forelorn, you are not the only one in trouble and there is a method to attain financial redemption.
On regular expenses like tuition fees and investing
JF: Tuition fees are part of your regular expenses, you should regularly set aside part of your income monthly to build up the school fund. When it is due, the entire amount should be in your hands.
If you have money equal to one month's expense in your disbursement account, plus another account has one month's worth if income and three month's worth in a money market fund, then go ahead and invest. These three accounts I mentioned above are your stability funds, and unless you have them in place, you can't put money in investments. The money equal to a month's income is for small emergencies, and the three months in money market is for large emergencies. If you put money in your investment portfolio, it should stay there “forever.”
FemaleNetwork: How can one efficiently use her 13th month pay or bonus to help reboot finances in order to stop living from paycheck to paycheck?
JF: Don't spend it, plain and simple. That is your hard line reboot. It will put liquidity back into your life.