TRAIN, or the Tax Reform for Acceleration and Inclusion Law has just been signed and taken effect since the first of January 2018. While inflating excise taxes on petroleum, sugary, and other luxury products, the tax reform has somehow lightened the personal income tax burden of the working class, hence an increase in the take-home pay.
In simple terms, TRAIN law has shifted the tax burden away from income and into consumption. Accordingly, these are the major changes brought by the 2018 tax reform:
- Lowering the Personal Income Tax (PIT)
- Simplifying Estate and Donor’s Tax
- Simplifying Value Added Tax (VAT) System
- Increasing Excise Tax of Petroleum Products
- Increasing Excise Tax of Automobiles
- Imposing Excise Tax on Sweetened Beverages
- and others (check Finance Department website)
Basically, take-home pay is the net salary income received after subtracting income (withholding) tax, social insurance or SSS, HDMF or Pag-IBIG Fund, and Philhealth contributions, and other deductions.
Given the extra take-home pay, let me give you four (4) great ideas, all translate to a more financially responsible and wise decisions, for your hard-earned money. I don’t give pieces of compelling advice here, rather suggestions for you to make the most of your pay.
1| Build Your Emergency Fund. You wouldn’t know how it feels having a peace of mind before hitting the hay at night until you’ve got a bank deposit enough to cover unexpected expenses – temporary loss of job, debilitating illness, or even gadget repairs.
Ideally, the fund is equivalent to at least 6 months of living expenses. Your monthly deposit of at least PHP 2,000.00 made possible by your extra take-home pay can speed up the buildup of your emergency fund.
2| Fund Your Personal Development Program. However satisfied you are with your monthly paycheck, still you, yourself, are the biggest income-generating asset. Why don’t you develop such ‘human capital’ to increase in value over time? Why don’t you invest in your personal and professional growth
You can actually make use of your extra take-home pay for additional trainings and seminars, short-term course tuition fees, memberships in professional organizations, and other personal interests. If you are an English teacher, regular annual membership in the Linguistic Society of the Philippines, for instance, costs PHP 1,000.00. Being a member, you can broaden your professional network and get exclusive access to lectures and conferences.
3| Start Making Good Investments. More and more young professional these days have been expressing so much interest in investing, but given the disappointing entry-level salary rates in the Philippines, most of them end up disheartened.
It shouldn’t be that way, much more that you now have an extra take-home pay. In a month or two, you can raise an amount enough for opening an online stock investment account.
Most stock investment beginners choose COL Financial Group, Inc. because of its flexible account options (COL Starter: PHP 5,000, COL Plus: PHP 25,000, and COL Premium: PHP 1M), user-friendly online trading platform, access to expert opinion and comprehensive research, and dedicated customer support. Read full article about opening a stock investment account here.
If you’re still indecisive about making a stock investment, then consider other investment instruments that suit your investment horizons and risk tolerance.
4| Save for Big Purchases. Who wouldn’t want a 2018 summer travel and vacation? Who would want more efficient home appliances that bring extra entertainment and productivity? Of course, you want ‘em all, but your meager paycheck has left you frustrated and hopeless.
With your extra take-home pay since the January 2018 execution of TRAIN Law, you can start more concrete savings goals for such major purchases. Suppose you are earning a monthly salary of PHP 20,000.00, you can save the additional take-home pay of PHP 2,683.84, and in four or five months, you already have the budget for your around PHP13k automatic washing machine. Wow!
In the end, when our discretionary income rises or our take-home pay increases, sometimes we are caught into the trap of improving our lifestyle or standards of living, and hence, luxuries and splurges become necessities. That is lifestyle creep. So, you better watch out! If you’ve already been falling into this trap, it is suggested that you start nipping it in the bud.