Jingle bills, jingle bills, jingle all the way

Question: Do you have any tips on how to wisely use my 13th month pay this year? I want to turn a new leaf.

Answer: Did you know that the original purpose for the 13th month pay was to provide assistance? Under Presidential Decree 851, the “whereas clauses” in mandating the 13th month pay were: 1) the necessity to further protect the level of real wages from the ravage of worldwide inflation; 2) the absence of any increase in the legal minimum wage rates since 1970; and 3) that the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year.

The sooner you accept that the 13th month pay was designed for assistance and not a bonus, the better off you will be financially. Why? Because while a bonus should be viewed as a reward for a job well-done, something earned from blood, sweat and tears, it is viewed more as a gift.

When I ask people in my training programs, which P10,000 is easier to spend, P10,000 coming from an office reimbursement or a P10,000 bonus, the reply is invariably the bonus. And between P10,000 kept in a savings account for one year and a P10,000 gift from parents, the answer is that it would be easier to spend the gift from parents.

Bonuses and gifts enter our brain as new money with which we have not yet developed a deep relationship and which have not yet become part of our store of wealth. That is why it is easier to spend money seen as a bonus or gift than the corresponding choices I give in my foregoing questions.

Marketers are lying in wait. They know people will not have a tight grip on their 13th month pay and bonuses, especially now when the pandemic is on the wane and people just want to simply get back out. Unfortunately, getting back out results in revenge spending. And to compound matters, such revenge spending will be happening at a time of high inflation.

So, to counter the tricks of marketers and sometimes our misplaced beliefs, prime your brain to readily see the threat of potential loss of money and benefit of potential for gain. For this, let us use the PFA EnRich™ CD-RW (cash, debt, risk, wealth) management model.

Cash management – be aware of packaged deals. For example, if you are buying a hamburger, your budget is just for that one hamburger. Marketers will attempt to lure you into buying packaged meals for some savings when compared to buying the included items individually. They know that the brain cannot resist missing out on what appears to be a great bargain. But your intent is to just buy one of those items. If you fall for their trap, you would literally and figuratively bite off more than you can chew.

Debt management – zero percent interest is not true. Again, your brain loves winning and hates losing. Buying something on installment without interest is a win, right? Well, ask first what is the cash price. If the cash price is lower than the SRP (i.e. suggested retail price), then the interest was just neatly tucked into the SRP. Cash price is not readily shown because of the tag price provision in the Consumer Act of the Philippines that states that there should only be one tag price.

Risk management – life insurance premiums are not expenses. An insurance premium becomes an expense once the policy has been used up. But the only time a life insurance policy can be used up is when there is a claim. And no one can predict when death benefit claims will be made. So, the better way is to treat life insurance premiums as assets (i.e. gifts for loved ones) waiting to be expended.

Wealth management – buy the shares and not the inventories of companies who are either making a killing during this period of high inflation or who are bouncing back nicely from the pandemic. It is said that a Persian sultan asked his wise men for a saying to be inscribed on a ring that would describe the “perpetual oscillation from good to evil, and from evil to good.” The saying suggested is known as “this too shall pass.” With the pandemic in the rear view mirror, economies are slowly normalizing.

There is now talk of the US Federal Reserve slowing down on its rate hikes. The Bangko Sentral ng Pilipinas is projecting inflation to slow in 2023 and 2024. The Asian Development Bank expects the Philippines to be one of the countries to lead the recovery in the Asean (Association of Southeast Asian Nations). The peso has already begun to appreciate versus the US dollar. And listed companies are beginning to report stellar incomes in a period of recovery. A good investor does not wait, he anticipates.

Use the PFA EnRich™ CD-RW management model as a guide to turn that new leaf of which you speak. You will definitely hear more bells and not bills jingling.

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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. To consult with a YAMAN Coach™, email yaman@personalfinance.ph. To learn more about personal financial planning, attend the 99th RFP Program this January 2023. To inquire, e-mail info@rfp.ph or text at 09176248110)