Question: I just received my 13th month pay. I want to spend it differently and more meaningfully this Christmas. Would you have any suggestions?—Average Office Worker
Answer: I am glad you asked. In this era of consumerism, it would be nice to give gifts that are unique, gifts that not only convey your affection for the receiver but also refresh in our minds the true spirit of the season. Here are six hot gifts you can spend your money on.
1. Add an auto debit instruction to your payroll savings account.
They say you cannot love others if you do not love yourself first. So give yourself a gift first by paying yourself. In the simplest terms, paying yourself means saving first. You might say you already have a savings account. Yes, but what I am recommending is for you to leave a standing instruction to your bank to debit your payroll account for a fixed amount every payday and credit it to anywhere from a passbook to an investment account. Firstly, it would be less convenient for you to withdraw from a passbook account since you would still have to fall in line. This avoids wanton ATM withdrawals. Secondly, an investment account makes it more unattractive to make premature withdrawals because of the penalties and/or lost income opportunity. With some investments, withdrawals before the maturity date are not even allowed. Your savings and investments serve as the solid foundation for you to give even more gifts to others in the future.
2. Accelerate your debt payments.
Another way to pay yourself first is to accelerate payments on your debts, particularly the expensive short-term ones. The interest expense you cut from your debt is also the interest income you pay yourself. And that’s guaranteed income! Before applying this strategy, read the fine print on your debt. Some loans come with provisions that do not allow accelerated payments. Accelerated payments on such loans will be treated as deposits and be applied as installments or amortization fall due. Some loans even come with charges for full payments. That is why it is important to always read the fine print on your promissory note before you even sign on the dotted line.
3. Review your life insurance policy.
As I mentioned in my column entitled “Insurance: Don’t leave life without it,” break your marriage vow by taking care of your spouse even beyond death. By getting or increasing your life insurance coverage, you can keep your spouse financially sound in case you move on to the next life earlier than expected. Insurance can also minimize the impact to your spouse of medical bills in case you get sick or meet an accident.
4. Open an investment account for children.
Start your children early in personal finance by opening a mutual fund, unit investment trust fund (UITF), variable unit linked (VUL) insurance and even pre-need plan for them. Since they are still minors, you may have to open “in trust for accounts” for them. The benefit of ownership in an investment is that it brings with it a feeling of confidence and as a sense of responsibility. The amount of investment can be as low as P1,000. Visit www.pifa.com.ph for mutual funds, www.uitf.com.ph for UITFs, insurance companies for VULs and pre-need companies for pre-need plans for more information.
5. Long-term care for parents
If you have the means, buy long-term fixed income investments for your parents from which they can draw interest for the daily living expenses including medical care. If you buy fixed income instruments like time deposits or bonds with tenor of more than five years, interest income becomes tax-exempt. And since your parents will only be after interest income, there is no need for them to bother with the up and down movements of interest rates, which affect the value of the placement. They just keep on collecting the interest periodically and the principal upon maturity. Just make sure you put the money in a stable institution. And do ask your friendly fixed income broker about the other requirements in enjoying tax-exempt interest income on long-term fixed income instruments.
6. Educate your family on personal finance.
Perhaps one of the better gifts this season is to get your loved ones involved in handling the family wealth. The way to start them out is to share with them the responsibility of preserving and even growing your wealth. Personal finance books, trips to the bank, a chat with financial planners, personal finance seminars help in educating your family about wealth management at a very minimal cost.
So this Christmas, if you want to give more than just presents from the store, think about living a more comfortable life by investing instead of spending your 13th month pay.
On behalf of everyone at PFA, we wish you a very Merry Christmas and a truly prosperous New Year.
(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-5050709 or e-mailed to efren@personalfinance.ph. To learn more about the RFP program, visit www.rfp.ph or e-mail info@rfp.ph.)