Starting the New Year with healthy bank account

FINANCIAL ADVISE

5 steps to build your emergency fund

Paying debts is a great place to put a portion of your 13th month pay. Whether it’s a credit card balance or a personal loan, pay your debts as quickly as you can. This is because you don’t want to end up paying more in interest. For comparison purposes, here is how little you earn in interest in your savings account versus how much you pay in interest for your debts:

Savings account: 0.25% a year (0.02% a month)

Personal loan: 18% a year (1.5% a month)

Credit card: 36% a year (3% a month)

Car loan: 60% a year (5% a month)

You can just see how much you’re paying in interest for your debts. If you can make a lump sum payment on one (or more) of your debts with your 13th month pay, then it’s best to do so. Kill those interest rates because you’re paying more on them that what you earn from your savings account and even your time deposits.

Investments

Savings are to protect your present self; investments are to protect your future self. Earning from your investments is one of the best examples of passive income. Passive income is when you exert minimal work to earn money – it’s making your money work for you. There are numerous investments available – mutual funds, UITFs, stocks, real estate, and businesses just to name a few. Where you invest depends on your timeline, risk tolerance, and investment amount among others. What’s important is you start investing.

Allocating a portion of your 13th month pay into your investments will allow you to grow your net worth at a faster rate because you’re depositing a higher amount than what your monthly budget is.

For future responsibilities

We all know the different stages of life, and as we get older, the more responsibilities we have. When you were in your twenties, you can survive on a small budget. Fast forward ten years later and your budget has skyrocketed what with the numerous responsibilities on your plate – car loans, a mortgage, children, healthcare etc. You’ve been saving the same amount every year, but you’re spending much more. Don’t let yourself get to the point where you’re telling yourself ‘it’s too late’. Aside from your retirement and emergency funds, start saving early for big-ticket items you expect in the future, be it your child’s education fund or a down payment on a home.

‘Fun fund’

The key to personal finance is moderation. You need to find a balance on what you can spend today and what you can sacrifice tomorrow. Living like a miser and saving 100% for tomorrow is never a fun way to live. Two of the most common regrets people have on their deathbeds is working too much and sacrificing happiness. It’s important to rewind and spoil yourself from time to time. At the same time, don’t use 100% today and leave 0% for tomorrow. You still want to live the retirement you’ve always dreamt whether it’s living on a beach or buying your dream car Find a balance and allocate a portion of your 13th month pay to treat yourself for working hard the past year.