How to spend excess cash from your leave conversion or tax refund
There is little data on how Filipinos spend their extra earnings. Still, a 2023 UP Diliman study suggests that lower-income and larger families spend their sudden surplus of money on immediate needs like food and family expenses rather than saving it for the future.
It’s understandable–extra cash can be a reason to reward yourself. Ask yourself: What was the first thing that came to mind when you received extra cash from leave conversion, a tax refund, or even extra earnings from your business? You likely thought of something to buy: A pair of shoes, perhaps? A bag? Something for your family?
While it may be incredibly tempting to splurge on gifts, summer vacations, or new gadgets, consider how it can help you build financial stability. Think of it as the best gift you can give yourself. Being mindful of your money now can lead to greater security in the future. Remember: Small steps toward your financial well-being are much more reliable than wishing to win the lottery or overspending a lump sum.
Be intentional with your financial goals.
Before spending, define your financial goals for the year. Are you saving for a major goal like completing your emergency fund, a down payment on a house, a new car, or your child's education? Knowing your priorities will help you allocate your extra cash effectively. One way to do this is by setting specific, measurable, achievable, relevant, and time-bound financial goals.
Stick to your budget and priorities.
A budget is a mindful roadmap that helps you track your income and expenses. List your income sources, including your salary, bonuses, and other additional earnings. Then, categorize your expenses into fixed costs (like rent, utilities, and loan payments) and variable costs (such as food, transportation, and entertainment).
Pay off debt.
If you have outstanding debt, consider using a portion of your extra cash to pay it off. High-interest debt can significantly impact your financial health, and reducing your debt burden can free up more money for savings and investments.
Practice mindful spending to avoid impulse purchases.
Avoid impulse purchases, locally known as “budol.” A good trick is to think about an intended purchase for at least 24 hours before buying it. Do you want this specific item, or was it just something you wanted at the time? Most of the time, you will realize that many impulse purchases are not something you genuinely want or need.
Make your money work for you through long-term investments.
Investing extra cash can help you grow your wealth over time. Explore options like stocks, bonds, or mutual funds. Do your research and consult a financial advisor to determine the best investment strategy based on your risk tolerance and financial goals.
Save for emergencies.
If you’re still building your emergency fund, using extra cash can help build your reserves. An emergency fund is crucial for unexpected expenses like medical bills, car repairs, or job loss. Aim to save at least six to 12 months' worth of living expenses if you’re single and 1 to 2 years’ worth if you have dependents, preferably in a high-yield savings account.
Your tax refund, leave conversion, or extra cash can be the “step up” you need to recalibrate your financial goals and thrive this year more easily. Remember, wise spending is not about deprivation but making informed choices that align with your long-term goals. By setting clear financial goals, creating a budget, and prioritizing your expenses, you can ensure that your money brings lasting benefits.
We talk about finances more in our Earnest e-book.
Disclaimer: This article is for general information purposes and does not constitute formal financial advice. Always do further research before making financial decisions and seek professional advice from a certified personal finance counselor. For more information, read the Earnest disclaimer here.
