This way you increase your holiday allowance to more than 10,000 euros

For many, investing sounds like a threatening concept. But with a good portion of patience you can let your money beat inflation in this way. And even more than that: your money can become worth a lot more in the long run. This is how you spend your holiday money smartly.

Even if you don’t want to deal with the stock market every day, there are ways to invest your money relatively safely. And the longer you can put your money aside, the more your holiday money will yield.

8 percent holiday allowance

Although we always talk about holiday pay in the vernacular, the legal term for this contribution is holiday allowance. In general, everyone in the Netherlands is entitled to at least 8 percent of their gross annual salary as holiday pay.

To calculate the amount of the holiday allowance, any profit or year-end bonuses are not included in the gross annual salary. There are employees in the Netherlands who do not receive a holiday allowance, because this is agreed in the collective labor agreement.

In such a case, the condition is that the employee has an income that is at least equal to 108 percent of the minimum wage. The minimum wage for employees aged 21 and older in 2023 will be equal to 1934.40 euros per month. This amounts to an annual amount of 23,212.80 euros. So if you work full-time, you must earn at least 108 percent of that amount to be excluded from holiday pay. You therefore earn either a minimum salary and 8 percent holiday allowance, or 108 percent of the minimum income. In both cases you end up with an annual salary of 25,069.824 euros with full-time employment.

Holiday money from Jan modaal

In 2023, the most common income – the income of the so-called Jan Modaal – is equal to about 40,000 euros. This amount includes holiday pay. Mr. or Mrs. Modaal can count on a gross holiday allowance of 2962.96 euros. Unfortunately, this is not the amount that you will receive in your account: with an income of up to 73,031 euros, a tax rate of 36.96 percent will be applied in 2023, the income above that will be taxed at a rate of 49.5 percent. Depending on your income, your holiday pay will be taxed according to one of the two brackets. Subsequently, a settlement percentage for the payroll tax credit is deducted from the holiday allowance.

To Spain or invest?

Suppose you receive a net holiday allowance of 1,500 euros in your account, then you can invest that money. Even if you have no ambitions to keep an eye on the stock market every day, an ETF can be a solution for you. Such an ETF is a collection of all kinds of companies, so that you invest your money in a spread manner. One of the better-known ETFs is the American S&P 500: over the past 100 years, this ETF (together with its predecessors) has achieved an average return of 9.3 percent.

Suppose we assume a slightly less rosy return, for example the notional return of 5.53 percent that was used by the national government in 2022 for investments in Box 3. Even then, there is quite a bit of profit to be made with your holiday allowance. What is important: a good portion of patience. Because the longer your horizon, the more your wealth will grow.

10,000 euros after a lot of patience

Do you know how to keep your patience for 30 years, for example? Then your holiday allowance with an annual return of 5.53 percent is no longer worth 1,500 euros, but then you end up with an amount of 7,062 euros. Will you leave the money for another 10 years? Then your holiday pay in 40 years is expected to be more than 11,000 euros. Who keeps what, has something, so to speak. If we assume this expected return, things will also go a lot faster. And count your profit if you do this every year.

Disclaimer: This article should not be considered professional investment advice.

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