If you would inevitably use your allowances to cover annual fixed expenses – such as motor insurance, IMI payments or school supplies – you should keep in mind that these expenses will continue to exist. As such, each month you should try to set aside the value of the twelfths by removing it from your checking account. Otherwise you may not have enough liquidity to cover this expense (s) when it arises.

Consider reducing your monthly income

Consider reducing your monthly income

However, given the increase in the cost of living and the reduction of the net salary due to the increase in the tax burden, it is necessary to analyze whether your monthly income is sufficient to cover your family budget. If it is insufficient, and it is not possible for him to reduce the family budget, then he will have no alternative but to use the value of the twelfths to cover the monthly expenses.

Define a savings strategy

Define a savings strategy

If you can cover your monthly budget and beware of the annual fixed expenses, leaving some income, then you should opt for a savings strategy. One possible strategy is to:

  1. To provide an emergency fund;
  2. Amortize credits with high rates;
  3. Invest

Establish an emergency fund

You should start by applying monthly the value of the twelfths in an emergency fund until this total is at least enough to cover 6 times your monthly budget. Choose preferably a term deposit that can be settled at any time and that you accept reinforcements, to where you must transfer the amount that you can save monthly.

Amortize credits with high rates

Amortize credits with high rates

Once the emergency fund has been set up, you can use your twelfths (or the total amount you can save every month) to repay your credits, starting with those with the highest APR. Whenever you depreciate, the capital outstanding will decrease. This means that in the following month your benefit will decrease, thus increasing the amount you can save each month. If you continue to apply this strategy every month, after a while, credit charges will decrease dramatically.

Although unlikely, you may find low-risk applications that are more profitable than your credit APR. In this case, instead of amortizing your credit, you can compensate for investing the twelfths in this type of applications. It is, however, a rare situation that you should not count on.

Invest

Invest

If you do not have credits to redeem, you should then try to apply your twelfths in financial products that fit your risk profile. By opting for a conservative choice, you can apply your twelfths to time deposits. You can see a regularly updated list of best term deposits in Portugal at Good Lender.pt.

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