13 Dos And Don'ts of Spending Your 13th Month Pay

Happy 13th month! While not a holiday – and also not a real month – most employees look forward to the end of the year because of the 13th-month pay, the special year-end bonus employers offer their employees as a special benefit.

While the additional zeroes to your bank account look great, remember that your 13th-month pay packet does not last forever. Instead of spending it all at once, remember that it can give you a head start on your financial goals and breathing room for future expenses. Read on to find out how to spend your 13th-month bonus wisely.  

What Is the 13th-month Bonus?

The 13th-month pay, also known as the Annual Wage Supplement (AWS), is a common benefit handed out at the end of the year. The law doesn't require it, but most employers offer it as part of the employment contract, much like transport allowances or welfare benefits.

It gives workers as much as an extra month’s income that they can use for personal financials in Singapore, such as spending on holidays, buying gifts, or even paying taxes. It benefits both employees and employers, as bonuses help boost morale and can help keep employees engaged in their company.

According to JobStreet’s 2022-2023 Outlook for Hiring, Compensation & Benefits, employers recognise that benefits, such as bonuses, are critical in attracting talent. About seven out of 10 companies have given their workforce a guaranteed or contractual bonus in the last 12 months. Eleven per cent of the companies surveyed said they offer guaranteed/contractual bonuses such as additional months of salary.

How Is the 13th-month Pay Calculated?

The calculation of your 13th-month pay depends on your contract. According to the Ministry of Manpower, employers can offer a lower amount if business results are “exceptionally poor” for the past year.  

How Can an Employee Ask for a 13th-month Bonus?

While AWS is highly encouraged by the Singapore government, it is not mandatory. But don’t worry if your company does not offer this financial benefit, you still have the option to ask your employer about it.

Similar to asking for a raise, inquiring about a bonus is a significant discussion that requires preparation. Create a strong case for your request and be open with your manager – tell them why you need and deserve the extra wage. You can also ask your employer if they offer other bonuses (e.g., performance bonuses) within the organisation and how you can qualify for those.

Be confident and assertive in your pitch while also being respectful. These benefits are still entirely up to your employer, and you should comply with their decision.

Do’s and Don’ts to Spending Your 13th-month Pay Wisely

DO: Treat yourself.

Do not feel guilty spending some of your bonus on yourself. During these challenging times, caring for your mental health has been put in the spotlight. Consider treating yourself as an investment in your emotional and mental well-being. Take a staycation, learn a new hobby, or sit down for a nice meal at a Michelin-starred restaurant. Do at least one thing that brings you joy.

DON’T: Blow through your entire bonus in one go.

When you earn more, you end up spending more. While this isn’t necessarily bad, it can lead to lifestyle inflation, a phenomenon that describes the inability to be financially stable despite earning a higher salary. Are you tempted to go for that more expensive brand? Check how much that cuts into your overall budget and affects your other expenses first to see if you can manage.

So before you spend your hard-earned 13th-month pay, make sure you plan how to spend the money. It will help you manage your expenses and savings, ensuring you account for everything.

DO: Clear your debts.

Over the years, you may have spent more than you should out of necessity (or otherwise). Perhaps you are in debt from student loans, an unexpected medical expense, a new gadget, or even a vacation you took.

You may not feel the pinch too much because you stretch some of the payments over 12 or more months. However, these things could pile up. Eventually, your monthly payments may not be enough to cover all of them. Next thing you know, you could be falling into financial issues you thought you only read about.

You can use the extra income to clear some of these debts and start fresh. Consider this the sign to start planning and managing your budget better.

DON’T: Put a downpayment on a major purchase.

Yes, you can use your bonus towards paying off existing debt. However, don't use this tip as permission to make new ones. Buying a new car, an expensive gadget, etc., should be thought out first and not done because you suddenly have a sudden influx of cash.

Creating new, unnecessary debt will increase the number of things you have to pay for with your regular income.

DO: Stash an emergency fund.

One thing the global pandemic taught everyone? No job is always stable. Budget cuts and downsizing blindsided many employees, especially those with no immediate “Plan B” to lean on.

You could use your bonus to start an emergency fund for unexpected events. It could help you have something to fall back on if you’re suddenly axed from a job or decide to pursue other opportunities.

Too often, people hesitate to quit a job even if they are burning out because it pays the bills. An emergency fund may provide the necessary buffer so you can be less dependent on your monthly income. If you’re unhappy in your current job, a substantial nest egg can give you the freedom to #SEEKBetter roles and opportunities.

DON’T: Use the bonus for regular expenses.

Remember that your bonus is an extra. By now, you should have already budgeted your regular income towards your routine expenses, like groceries and utilities. It’s better to put your 13th-month salary towards your savings or investments.

If you find yourself short on funds to pay for the daily necessities, perhaps you should take the time to review your budget and make changes.

DO: Grow your savings through trading.

You can also consider planting your bonus in investments. This way, your extra income can grow even more over time.

Trading in the stock market can potentially yield rewards over time. Cryptocurrencies are also gaining acceptance and could be an investment option. However, while the stock market is widely known, the MAS still advises caution on investing in crypto because of its volatility.

Technology has made it easier for you to manage your portfolios. Robo-investing platforms are widely available to trade stocks, foreign exchange, mutual funds, crypto, and more.

DON’T: Forget to separate your bonus from your regular savings.

A regular savings account yields really low interest rates, which means it will take a long time for your money to grow. If you place your bonus in a higher-earning account, you will get more ROI for your money faster. These accounts usually require a higher initial deposit, so your bonus may be a great place to start.

If you’re wary about trading in the stock market because of its volatility, putting your money in high-yield savings accounts can help you earn money with less risk. You can use the money earned here for your short-term savings goals.

If you prefer keeping your bonus in your existing savings account, make sure to earmark it as a separate fund from your regular cash. This way, you remember that these should be for important items, such as an emergency expense.

DO: Speak with financial advisors.

Financial advisors or asset/wealth managers can help you allocate your budget to cater to life or career goals. Connecting with trusted independent financial advisors can ideally give you a broad range of options in terms of insurance policies and investment opportunities.

Do your research and ask your close circles about their experiences and recommendations.

Even when you already have a financial advisor, don’t stop learning about where your money goes. While you should consider their advice, the final decision should still come from you.

DON’T: Delay investing.

There’s no better time than the present. If you’re worried about being unable to clear your debt, budget your bonus to accommodate savings and expenses. Better yet, think of your savings as an expense you pay yourself.

The pandemic showed that you always have to expect the unexpected, so it’s better to be armed with as many sources of funds as possible, whether in your bank account, stocks, or other helpful investments.  

DO: Invest in yourself.

Your year-end bonus is a well-deserved reward for the hard work you put in throughout the year. It only makes sense to spend it on yourself.

You can use it to enrol in a short course to add to your credentials or improve your current skills. (Check out ZilLearn for available classes.) It can help open more opportunities for career growth in the future.

You could also consider getting covered by insurance. It can help protect you and your loved ones if anything unforeseen happens to you. Some insurance companies also offer investment options that you can withdraw after an agreed duration of years.

DON’T: Overhaul your closet with too many expensive clothes.

While upgrading your closet can be a way of investing in yourself, don’t waste your bonus on buying an entirely new wardrobe. Instead, splurge on a few high-quality pieces that will stand the test of time. Avoid stocking your closet with the trendiest signature items that will go out of style quickly.

Buying expensive things needs to be treated as investments that require pause: Do I need this? How often will I use this item? Will it work with the other pieces in my closet? Take the time to answer these questions to assess if spending on the latest fashion is worth it.

DO: Consider tax relief.

If the extra income is something that you can live without using immediately, you may consider topping up your CPF.

While it may be stuck there until you make a withdrawal or claim, it does offer some benefits. It has attractive interest rates, can reduce your taxable income, and can boost your retirement payout when you are eligible to receive them.

You can also consider giving back to the community through donations. In February 2021, the government announced that the 250% tax deduction for qualifying donations will be valid until 31 December 2023.

Managing personal finances can go a long way in securing your future no matter what happens. If you haven’t quite figured out how much money you have on hand every month, the JobStreet Salary Calculator can help you find out. This way, you can manage your regular monthly income better.

Check out our Career Resources page to learn more about managing your income and to #SEEKBetter jobs that can help you build the future you deserve. For more tips from JobStreet, download our app on Google Play and the App Store for easier access.