Three financial tips to take advantage of the ‘extra’ Christmas pay

Extra Christmas pay

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16.Dec.2021

Christmas is a time of expenses, yet December is also a time of additional income. The last month of the year is when most salaried people get their 'extra' pay, and may also get a bonus from their company. That's a lot of money in one go at a time of year that invites unbridled consumerism.

Indeed, Spain’s 14 payment salary system, as stipulated in Article 31 of the Workers’ Statute, was created specifically to deal with Christmas expenses. However, one thing is that we spend more at this time of year, and another is whether we do so mindfully or not.

The trouble is that when you get that extra payment, your mind tends to take emotional rather than rational decisions. Receiving money is equivalent to an injection of adrenalin that makes your mind start doing cartwheels.

You can finally buy that article you’ve been dreaming about, or go to the hairdresser, or treat yourself to something special. In other words, you lose the fear of spending because now you have the money to do it.

In addition, that extra payment sparks off a mental accounting bias that views the money as having simply fallen in your lap. This bias is a mental shortcut whereby the value we attach to money varies depending on its source. Very briefly, we are more likely to spend money that comes from a lottery win than our salary.

The reason for this, according to different studies, is that the brain attaches less importance to money that comes as a surprise, that doesn’t form part of your budget and is not directly related to your work. In other words, you don’t really think of it as yours. This is exactly what happens in the case of a gambling or lottery win.

A study of casino gamblers found that we risk much more with money from winnings than money we put on the table from our own pockets. It’s the same situation with the Christmas Lottery. If you get back what you spent on the ticket, most people play the money again on the New Year lottery. Even if you won 100 euros, it’s highly likely that this money will disappear from your wallet on some kind of treat or another lottery ticket. Would you act in the same way with 100 euros of your salary? Not so easily, no.

How to avoid wasting your extra pay

Is there anything you can do to stop this mental process from happening? Is it possible to avoid wasting that extra Christmas pay? Yes. There’s a very simple process: keep back part of your extra pay or Christmas bonus.

For example, you could save up to 50% of it and spend the rest on Christmas expenses. By doing this, you’ll ensure:

  1. That you improve your economic situation and help to build your financial future.
  2. That you’ll keep your Christmas budget under control.

The specific percentage to hold back from the extra pay is up to you, but try to make it at least 25%.

How to take advantage of your extra pay to improve your financial situation

So what should you do with this percentage of your extra pay that you’re going to save? Whatever you like, but there are three basic operations that will help you in the long term.

Savings

This is the most basic choice. If you don’t yet have an emergency financial cushion, use this money to start one up.

This fund for unexpected situations will reduce your financial stress and bring you a lot of peace of mind, because you’ll be in a position to cope with unforeseen expenses without having to go into debt or change your plans.

Pay off some of your mortgage

The second option is to reduce your debts, and more specifically your mortgage. Paying off part of your mortgage in advance will help reduce your long-term interest payments and free up a little of your monthly budget if you reduce instalments.

In addition, if you bought your house before 2013 and you use it as a tax deduction, it can help you save money on your 2021 tax return. At present, the deduction for buying a property is 15% of your mortgage payments up to a maximum of 9,040 euros. If you have paid less, this additional amount will help you to pay fewer taxes.

Invest

The third option is to invest the money. If you still haven’t started investing, this extra wage can help you take that step. In this article, we explain when it’s a good time to move from saver to investor.

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