How to plan your 13th month pay before it arrives

Your 13th month pay is one of the few 'extra' amounts you get in a year. Without a plan, it goes to Noche Buena, gifts and sales, and January starts with nothing.

It arrives exactly when spending pressure is highest: parties, exchange gifts, family visits, and 'sale' signs everywhere. That's why deciding how to split it before it lands is the single best thing you can do with it.

Who gets it

Under Presidential Decree No. 851, rank-and-file employees in the private sector who worked at least one month during the year are entitled to 13th month pay. It must be paid on or before December 24, though many companies split it into two releases (for example, half in May or June and half in December). If you resigned during the year, you're still entitled to a pro-rated amount.

A simple split

1. Pay off high-interest utang first (credit cards, paylater)
2. Top up your emergency fund
3. Set aside a fixed Christmas budget, and stick to it
4. Put a portion into a longer-term goal

Why this order? Credit card and paylater interest can be 2% to 3% a month, so paying off debt is a guaranteed 'return' no savings account can match. The emergency fund comes next because January is when many surprise costs hit. Christmas is third, not last, because a planned budget you enjoy beats an unplanned one you regret.

A common split for someone with some debt: 40% debt, 25% emergency fund, 25% Christmas, 10% long-term goal. Debt-free? Try 40% emergency fund or goal, 30% investments or MP2, 30% Christmas. Adjust to your situation, but decide the numbers before the money arrives.

Know how much is coming

Your 13th month pay is your total basic salary for the year divided by 12, and it's tax-free up to ₱90,000 together with other bonuses.

Basic salary means your regular pay, not overtime, night differential, holiday pay or allowances (unless your company includes them). Example: if your basic pay is ₱20,000 a month for all 12 months, your 13th month pay is ₱240,000 ÷ 12 = ₱20,000. If you joined in April, it's the basic pay you earned from April to December, divided by 12.

The ₱90,000 tax exemption covers your 13th month pay and other bonuses combined (like a Christmas bonus or productivity incentive). Only the amount above ₱90,000 is added to your taxable income.

Watch out for

• December sales that push you to buy things you didn't plan
• New installment plans that will follow you into next year
• Lending more than you can afford to relatives during the holidays

A good test for any December purchase: would you still buy it in March at the same price? If not, it's the season talking. And any new installment you start in December will be eating your sahod in April, long after the lights come down.

Make your Christmas budget work

• List everyone you'll give to and a peso amount for each before you shop.
• Set a family exchange-gift limit together; most relatives are relieved.
• Pay cash or debit for gifts so the spending stops when the budget does.
• Keep a small 'surprise' line for the inaanak you forgot.

Remember this

Split it before it lands: utang, emergency fund, a fixed Christmas budget, then your future.

Do this today

Estimate your 13th month pay and write the four amounts of your split on a note.